Facts on Mortgage Insurance

Photo by Laura Taylor
Photo by Laura Taylor

You have just spent months shopping for your dream home, then weeks looking for the best mortgage rate. Your lender suggests taking out mortgage insurance to protect your prized asset. On the surface it sounds like a good idea - protecting your loved ones against an unforeseen illness or death seems like a prudent decision, so at the lender's suggestion you decide to tack on the premium to your mortgage payment.

This scenario unfolds hundreds of times each week throughout Canada, yet many consumers still do not realize that they may be getting ripped off. The basic premise behind mortgage insurance is sound; the problem is that, in most cases, consumers blindly sign up without taking the time to examine their options. Mortgage insurance offered through a lender just does not offer the flexibility available with individual insurance policies offered through life insurance companies, and in most instances the coverage is significantly more expensive through a lender.

Let's take a closer look at a few specific differences:

  • The mortgage insurance coverage amount with a lender declines as your mortgage balance declines. The coverage amount on a separate policy remains the same, even as your mortgage shrinks.
  • Mortgage insurance through a lender is not portable. An individual mortgage insurance policy through an insurance company is owned by you - you can keep it if you switch banks, pay off your mortgage or move to a new home.
  • Mortgage insurance through a lender only pays out a benefit equal to the mortgage, even if both spouses die. Individual policies will pay out twice the amount in the event of a simultaneous death.
  • A mortgage lender's insurance names the bank as beneficiary if you die. A separate policy allows you to choose your own beneficiary.
  • Mortgage insurance through a lender is not convertible to a permanent insurance policy. An individual term policy through an insurance company is convertible without a medical to a permanent policy - providing lifetime protection and the ability to generate a tax-sheltered cash value.

You would think you'd be receiving all these benefits when paying the premium from your mortgage lender - think again. A 38-year-old male and 37-year-old female will pay 28 cents a month per thousand dollars of mortgage amount on a mortgage life insurance plan with CIBC. On a $500,000 mortgage, this translates to $140 per month. That same couple can apply with Transamerica Life for $500,000 of Individual Term 20 coverage for $98.55 a month; and if they qualify for preferred rates their premiums could be as low as $71.10 a month. That's a savings of $9,948 to $16,536 over 20 years - not bad for a few minutes of research. You can see the savings for yourself at Get your free quote.

The moral of this story - a lender's mortgage insurance offers convenience. But this convenience comes at a price - inferior coverage, and in most instances, significantly higher premiums.

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6 Comments

  1. […] The first one tells you what to avoid when applying for a mortgage, the second one gives you some facts on mortgage insurance. For these offers from your lender promise you convenience, but this convenience comes at a […]

  2. […] consumers are using to cover the mortgage. Mortgage holders who wisely opt of the bank’s mortgage insurance plan are left with the dilemma of a long term life insurance need and potentially limited finances. In […]

  3. Krzysztof Tota 06/23/2009 at 11:05 am

    Hi,
    I am a client (I have mortgage insurance with sunlife) what exactly does that cover. What about involantary unemployement such as a lay-off or strike? I’m not too clear on what this coverage covers??
    Thank you,
    Chris

  4. LSM Insurance 06/23/2009 at 2:13 pm

    Thanks for the note. Lay-offs or strikes will not be covered under traditional mortgage insurance plans.

    I would check with Sun Life if your policy has a job loss feature and if this is covered under that plan. Most job loss protection plans have many restrictions so it’s difficult to say. Regards … Lorne

  5. Marilyn 10/09/2009 at 9:21 am

    Hi,
    I have a mortgage insurance with Unity. The price amount is right and very affordable for me. However, I am trying to search an insurance company that will help a lot to save from my Line of Credit insurance on my bank. Is there any insurance for debts?

    Any advice?
    Greatly appreciated.
    Marilyn

  6. LSM Insurance 10/09/2009 at 2:23 pm

    Hi Marilyn,

    Thanks for the note. We have some terrific term life solutions for your line of credit. I will send you a separate email shortly. Regards … Lorne

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