Is your bank recommending you to buy their mortgage insurance product for your mortgage?
This is standard procedure as the bank wants to protect its interests and make sure they get repaid in case something happens to you.
While mortgage insurance does provide protection for your mortgage, meaning your mortgage loan will be paid if you die unexpectedly, it is not the best protection for homeowners in Quebec.
In this article, we are presenting in detail 7 reasons why you should never take mortgage insurance from the bank.
At the same time, we will be presenting better options for mortgage protection that will give you and your family greater protection at a far better price.
Fill out the form on this page to get free and no-obligation offers from our insurance partners to save time and money!
Disadvantages of buying mortgage insurance from your bank
#1: You cannot choose the beneficiary of your insurance.
The main reason why your bank wants you to take out their mortgage insurance is because this product protects your bank first. How is that?
This is because you can’t designate a beneficiary for your mortgage insurance.
The bank automatically becomes the sole beneficiary of your insurance because your insurance is directly linked to your mortgage.
In case you die, your insurance will pay off the balance of your mortgage. This benefit will naturally be good for your dependents because they won’t have to worry about paying off the mortgage loan or having the home foreclosed.
However, your family will not receive cash benefits that can help them with their living expenses.
Choosing your beneficiary is possible with life insurance!
On the other hand, life insurance is the better solution to protect your home and your mortgage, without the benefits going directly to the bank.
Private insurance companies offer this product which is far more advantageous than bank mortgage insurance.
With private life insurance , you can name anyone as a beneficiary. In the event of your death, this person will receive the full amount of life insurance, and can then decide to pay off your mortgage, sell the property and keep the insurance, etc.
Generally, the designated beneficiaries are any of the following:
#2: Your insurance coverage decreases with your mortgage balance.
The biggest disadvantage of bank mortgage insurance is that the coverage of the policy decreases with your mortgage balance. Remember that we said that the insurance policy is directly linked to your mortgage?
Thus, you pay a fixed premium during the term of your mortgage but the insured amount will keep going down. When you think about it, it doesn’t make sense. You get less protection over the years because you owe the bank less but your premium stays level.
Let’s look at an example to illustrate the point.
If you take out a mortgage for $400,000, the bank will recommend that you buy mortgage insurance for the same amount. Because you want your mortgage approved or don’t know any better, you agree.
The premium is $62 per month. The initial coverage is, of course, $400,000 to cover the loan.
After 10 years, your premium is still $62 per month, but your mortgage balance is now $310,000. Your mortgage insurance coverage is now the same amount.
After 10 years, your insurance coverage has decreased by $90,000 but you are still paying the same amount of premiums.
By opting for LIFE insurance with the SAME conditions as mortgage insurance, your premium will be lower (yes) and your coverage will be constant. So after 10 years, your premium will stay the same and you’ll still have $400,000 in coverage, even if your mortgage is $310,000.
Your spouse can pay off the mortgage and keep the difference for the family’s needs. This is a more sensible and convenient choice.
#3: If you change lenders, you'll have to change your mortgage insurance.
Another big problem with mortgage insurance, and one we don’t always think about, is the fact that it’s tied to your loan.
Why is this a problem? Because if you want to change lenders, you’ll need to get new mortgage insurance and you’ll be re-evaluated.
This isn’t too serious when you’re still young and in good health, but as you get older, health problems can make you uninsurable.
- Do you have diabetes?
- Have you suffered a heart attack?
- Have you been diagnosed with cancer?
- Have you had a serious accident?
Over time, various situations can affect your insurability. If you want to change banks, you may no longer be insurable. You’ll be stuck with your current bank to keep your insurance.
Here’s why life insurance is perfect for covering your mortgage.
Private life insurance offers the huge advantage of not being tied directly to your mortgage.
Unlike bank mortgage insurance, life insurance is 100% independent. This allows you to change lenders and mortgage products without ANY impact on your insurance. It’s tied to you, not to your house and bank. You can shop around for the best mortgage rates whenever you need to without worrying about losing your mortgage insurance coverage.
#4: The amount of coverage is determined by your mortgage
Let’s talk about flexibility when it comes to the amount of coverage. When the bank offers you mortgage insurance, it automatically sets the amount of coverage based on the amount of your mortgage.
You might think this is fine since you don’t need a higher insurance amount. But are you sure your family will have enough money if you should die unexpectedly?
Life insurance, on the other hand, is much more focused on your COMPLETE financial and family situation.
Yes, life insurance can cover your mortgage and leave a significant amount to your dependents. This guarantees financial security for your family if something happens to you.
With life insurance, you can determine a personalized amount of coverage that exceeds the amount of your mortgage. This amount will be determined by analyzing your needs. In the event of your death, you can:
- Provide income replacement for your spouse;
- Cover your children’s long-term education;
- Pay existing financial obligations;
- Pay for funeral expenses;
- And much more!
Of course, you don’t need to buy excessive life insurance coverage. You are in the driver’s seat, and you are in charge of planning for your financial security, not the bank.
#5: You lose insurance coverage when your mortgage is paid off.
Because your mortgage insurance is directly tied to your mortgage, your coverage ceases once you pay off your mortgage.
Over the years, your coverage decreases in line with your mortgage balance until both reach ZERO.
After 20-25-30 years, your protection will drop to zero and your insurance will end. You won’t have the option of extending it.
This is a problem for people who want long-term protection for their families.
With life insurance, you can choose a different term from your mortgage amortization. There are some beneficial mortgage life insurance options available:
- Renewable Term 25 life insurance
- Term life insurance 30-35
- Term life insurance to age 65
- Term to age 100
- And much more!
Contrary to popular belief, opting for life insurance doesn’t cost more – quite the opposite.
#6: Bank mortgage insurance is more expensive.
If all the reasons we’ve listed so far aren’t enough to convince you, this argument should.
Mortgage insurance from traditional banks costs MORE than private life insurance from insurance companies.
Why is that? Because banks don’t invest as much in risk analysis as insurance companies.
Rates are the same for all clients of the same age. This means that people in poorer health pay less than they should, and people in good health pay more than they should.
To prove to you that the same protection costs less with life insurance, I did a comparison. Here are the results.
Mortgage insurance price vs. life insurance price (Quebec)
When I took out a $400,000 mortgage, the bank offered mortgage insurance for $57 a month.
I then took the time to shop around for 25-year term life insurance, the length of my amortization, with 5 different insurers. Here are the prices I received (I’ll keep the companies’ names anonymous):
- Insurer #1: $32.94
- Insurer #2: $30.50
- Insurer #3: $33.39
- Insurer #4: $36.20
- Insurer #5: $33.12
In the end, that’s a difference of $27 per month, or nearly 50% less. That’s quite something! The difference is $324 per year, and $8,100 over 25 years.
Furthermore, the premium for life insurance is constant throughout the term of the contract for the same insured amount. In the case of bank mortgage insurance, the premium is level while coverage decreases during the term.
#7: Mortgage insurance protects the bank, not your loved ones.
The final clincher – mortgage insurance that the bank offers you when you take out a loan only benefits your lender. Its main purpose is to protect your bank from default in case you die with your mortgage still unpaid. So it is protection for your bank, paid for out of your own pocket.
Life insurance, on the other hand, is protection you get from a private insurance company and can cover whatever you want.
We generally use it to cover our mortgage, debts, funeral expenses, and so on. That way, in the event of death, the surviving spouse has the funds to cover the mortgage and other obligations, thereby avoiding financial problems.
When you take out a mortgage, you are not obliged to take out the mortgage insurance offered by the bank. Instead, tell your advisor that you will shop for it with private insurers. Still ask him to get you the price of home mortgage insurance, so you can compare.
Mortgage LIFE insurance –Better protection at a lower price
Now that you see can appreciate the huge difference between bank mortgage insurance and mortgage life insurance, you can make an informed decision and look for the right life insurance to cover your mortgage.
We refer to “mortgage life insurance”, the life insurance that people take out to cover their mortgage.
It should not be confused with bank mortgage insurance.
Why is it important to have insurance that covers your home mortgage in Quebec?
- In the event of death, your spouse will not have to worry about making the mortgage payments.
- There will also be no fear of the bank recalling the loan or foreclosing on the property in case of default.
- Your family will have peace of mind and be free of financial worries.
In closing, the following table summarizes the main differences between mortgage insurance and life insurance in Quebec.
In fact, if you want to shop around for life insurance prices to see how much you can save, fill out our 100% free form.
Comparison Chart: Bank Mortgage Insurance vs. Mortgage Life Insurance
Bank Mortgage Insurance
Mortgage Life Insurance
You can choose your beneficiaries
Change of lender
New application, insurance re-evaluation
Same insurance policy
Same as your mortgage balance, decreases with your mortgage balance
Same insured amount throughout the term of the contract
Duration of coverage
Same as your mortgage term, stops when your mortgage is paid
You can choose the term of your coverage – 15, 20, 25, or lifetime
Cost of premiums
Constant throughout the term of your mortgage
Constant throughout the term of your mortgage but cheaper
Huge savings with mortgage life insurance from our partner insurers
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In doing so, you can save time and money on mortgage insurance protection and guarantee the financial security of your family.