Mortgage vs. Life Insurance
Mortgages
Insurance
Money
If you already have a mortgage, you've probably been offered mortgage insurance by your bank or lender - this is not to be confused with mortgage default insurance offered by companies like CMHC, which protects your lender in case you default on your mortgage. Before you agree to purchase mortgage insurance through your bank or lender, make sure you know your options. Below we have outlined the differences between life insurance and mortgage insurance.
Details |
Life insurance |
Bank-offered mortgage insurance |
| Premiums | Discounts available based on your health and your family history Premiums are NOT taxable | No discounts available based on health Premiums are taxable (PST) |
| Beneficiaries | You can choose your own beneficiary | The mortgage lender is the beneficiary |
| Consolidation | Able to consolidate a term life policy with other insurance coverage into a single lower rate plan (speak to a life insurance expert about this) | Need to keep the mortgage insurance policy separate from other insurance coverage |
| Flexibility | Able to change mortgage lenders and take the coverage with you if you move homes Coverage can be arranged for the rest of your life | You're not able to take coverage with you if you move homes or to a new mortgage lender Your coverage is limited to the specific propertyMany have restrictions for people over 60 |
| Coverage value | Coverage value remains constant If you paid for $250,000 of coverage, that will always be the lump sum payment amount, regardless of the outstanding mortgage amount | Coverage value decreases with each mortgage payment you make Example: - If you paid for $250,000 of coverage - then paid off $50,000 of your mortgage - Your premium payments would remain the same - However, your coverage value would now only be $200,000 (ie. the amount remaining on your mortgage) It is a declining amount |
| Renewable policies | You can buy policies that cover you for 10, 20 and 30 years and that are guaranteed to be renewable at the end of the policy | Not guaranteed to be renewed after the term ie. if you take out a 5 year fixed mortgage and the insurance coverage is for 5 years, you may not be able to renew your insurance policy with your mortgage |
| Policy terms and continuity | Policy terms don't change and the policy premiums are guaranteed | Policy terms and the insurance provider can change |
| Ownership | You own the insurance policy & coverage | The mortgage lender owns the certificate of insurance |
| Convertible to permanent policy (ie. to policy that covers you for your whole life) | Policies available to convert to a permanent policy | Not convertible into a permanent policy |
Please note: the above table is for illustrative purposes only and we've compared standard policies of each type that are available. This is not meant to be a comprehensive or exclusive list. Please contact an insurance broker to discuss your indivudual requirements. |