Mortgage insurance covers the balance of your mortgage owing. It is also known as creditor insurance since it’s offered by creditors (typically your bank or lender). It has also been referred to as decreasing term insurance because the coverage decreases, as your mortgage goes down.
So, while your premiums stay the same for the duration of your mortgage, the coverage you’re receiving is actually declining with your mortgage balance. A lower mortgage over time means you’re receiving less coverage. In other words, as time goes on, you pay the same amount but get less coverage.
Life insurance products are not tied directly to your mortgage. That means that while your premiums will remain level for a period of time, so will your coverage – it doesn’t decline with your mortgage balance.
A complete breakdown of the differences between mortgage insurance and life insurance can be found here.
Life insurance is a contract between the policy owner and the insurer, where the insurer will pay the face value of the policy or coverage amount to a designated beneficiary upon death of the policy holder in return for premiums or regular payments for this policy.
There are many life insurance policy categories, names, and jargon but the two main types are: permanent life insurance or term life insurance.
Permanent life insurance means that the policy is valid for the whole life of the policy holder. While term life insurance means it is temporary coverage for a set term.
The main types of permanent life insurance include whole life, universal life and variable life. These are all designed to provide insurance protection for your entire lifetime, as long as you keep the policy in force (i.e. pay the premiums).
Term life insurance policies provide coverage for a specified period such as a certain number of years or a set age and then it expires, requiring you to get a new policy. The coverage, or what is also known as the death benefit, is paid out only if you die during the term of the policy. There are many different types of term policies that are commonly available such as one, five, ten, twenty or thirty years or until the age of 60 or 65, for example.
There is a type of policy called Term to 100 that is often categorized as a permanent life insurance policy but is actually a term policy that covers you to the age of 100.
The majority of the life insurance quotes on RateSupermarket.ca are for term life insurance policies, but you can fill out call back request. if you're interested in a permanent policy and we'll get a licensed agent to contact you to discuss your options.
This really depends on a numbers of factors including the age and health of the insured and if applicable the length of the term. Permanent life insurance will always cost you more than term life insurance.
It is best for you to compare life insurance quotes online and then speak with a licensed specialist to get the best rate.
If I later decide that I want a permanent life insurance policy instead of a term policy, can I change it?
Most term life insurance policies in Canada offer a conversion privilege, allowing you to trade in your term life insurance policy for a permanent life insurance policy. Sometimes this can even be done without a medical exam. This conversion privilege means you are assured of being able to buy life insurance at healthy rates in the future even if you become uninsurable. These are features simply not found with mortgage life insurance.
There are several reasons why you should choose life insurance over mortgage insurance when considering protecting your home.
1) Decreasing coverage – As previously mentioned, you will pay the same amount of money for less coverage as time goes on with mortgage insurance.
2) The length of the coverage - Mortgage life insurance is valid for as long as the ‘term’ of your mortgage, NOT the amortization period of your mortgage. For example, if you have a fixed mortgage for a term of 5 years (5 year fixed rate), your mortgage life insurance will last for only 5 years before you need to renew it. This could be an issue if when you go to renew the insurance you have become uninsurable; therefore, you could be declined for mortgage life insurance at renewal time.
3) Choosing the beneficiary – With mortgage insurance, the beneficiary is always the bank or lender. With individual term life insurance you can name your own beneficiary, i.e. spouse or other dependents.
That really depends on your own personal situation - what financial burdens would you like to cover in the case of your death and how much money would you like to leave behind for loved ones after you are gone?
Term life insurance is normally used to cover temporary obligations such as a mortgage, personal loan or business obligations.
Permanent life insurance is typically used to provide financial support for funeral expenses, capital gains or inheritance tax from your estate and to supplement a spouses’ or dependents income after your death.
Many people tend to purchase a mixture of permanent and term life insurance to balance the cost of premiums with the pay out.
This is one of the first questions that many people ask and the answer depends on your personal needs. The approximation typically used in the industry is between 5-7 times your current net income.
Many life insurance specialists will help you to access your current assets, short and long term liabilities as well as additional money needed in the event of death for things such as funeral costs and the continuing need for income.
Click here for our income replacement calculator which will help you work out a ballpark figures. A qualified life insurance agent will be able help you work out a comprehensive financial needs analysis.
Life insurance brokers are not tied to an individual company and can shop around to find the least expensive rates for your situation.
Mortgage loan insurance, mortgage default insurance and mortgage life insurance are terms that seem similar and are often used interchangeably. In reality, these types of coverage are very different and each one offers a unique benefit to homeowners.
Mortgage loan insurance is the same as mortgage default insurance. This insurance is typically required by lenders when you are buying a home or looking for mortgage refinancing and have less than a 20% down payment based on the property’s value.
Mortgage loan insurance is supplied by the Canadian Mortgage and Housing Corporation (CMHC), a government organization, and private insurers including Genworth Financial and AIG United Guaranty. Mortgage loan insurance helps protects lenders against mortgage default. This enables consumers to purchase homes with little or no down payment; it’s estimated that about 50% of mortgages taken out in Canada need to be insured.
Mortgage life insurance or just mortgage insurance, on the other hand, is a life insurance policy that pays out a lump sum upon your death to cover the rest of your mortgage.
For more information on mortgage loan insurance including an approximation of premium costs, click here.
There are several things you should consider before you purchase insurance for your mortgage, such as:
- What type of insurance is right for you? Mortgage insurance, term life insurance, permanent life insurance or a combination.
- How much coverage do you need?
- Who will be the beneficiary? That is who will receive the pay out if you should pass away? Many people choose their family or put the proceeds into a trust. If you go with mortgage insurance the money will be paid to the creditor.
- How will you pay your premiums? Annually or on a monthly basis?
- Would you like a renewable or convertible insurance policy?
Renewable insurance means you can renew your policy at the end of its term without having to provide a medical or other evidence of insurability. However, each time you renew chances are you’ll have to pay higher premiums as a result of the insurance company having to provide coverage for an older person. Once you get to around the 70 year mark, renewable policies are harder to get so you many not be able to renew.
Convertible life insurance means you have the option to swap your term life insurance policy for a permanent one without having to submit evidence of insurability.
Very few people are ever declined outright for life insurance coverage. There are few risks if you provide the insurance company with proper and true information, your policy will cover you for just about anything and anywhere. But misleading or lying on an application can and most often will, lead to a claim being denied in the future.
If you happen to miss a premium payment due to insufficient funds, you generally have 30 days to make that payment back to the insurance company to ensure that your policy is still in forced. If you are still unable to pay, your policy will lapse on day 31, but you still have a six month window to ‘reinstate’ your policy with the identical terms from when you set it up. This relates to your death benefit, premium, policy date and beneficiaries. The catch here is that you will be asked to make up the premiums missed as far back as six months, which could be a large amount to pay back at once.
You may be able to take a premium holiday depending on how long you have owned the policy. This option is not available on all policies, so be sure to check with your policy holder.
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