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– Conventional or subsidiary mortgages
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– Mortgage Refinancing, etc.
Are you buying a house or renewing an existing mortgage? Your lender may recommend or require mortgage insurance as protection in case you die before the mortgage is paid.
You may think this is just another way of increasing the cost of homeownership but mortgage insurance is a valuable way of protecting your investment.
Surveys show that more than 70% of Canadian homeowners will struggle to pay their mortgage if the principal breadwinner should die.
With this in mind, the question should be “Which mortgage insurance will give you lower premiums and greater coverage?”
You see, your lender bank sells mortgage insurance but the benefits are paid directly to the bank. Your dependents will not receive any death benefits.
In contrast, if you buy life insurance to cover your mortgage, the benefits are paid to your mortgage and the remaining funds are for your dependents.
The second option sounds much better, right? But that is not all. Even the amount of coverage varies significantly between mortgage insurance from a bank and life insurance.
Find out more so you can get better coverage and lower premiums. You can compare actual quotes from top insurance brokers, free of charge! Just fill out the form on this page.
An unexpected death or illness can leave your dependents with an unpaid mortgage. You don’t want your home to be taken away and your dependents homeless if they can’t keep up with the mortgage payments.
A sensible and practical solution to this concern is to obtain mortgage insurance protection. There are several ways to get mortgage insurance.
Understanding how each of these methods work will help you to get the best coverage for your needs.
Mortgage insurance from banks
Many lenders, especially banks, sell mortgage insurance. In case the borrower dies, the insurance policy pays the cash benefits to the bank to pay off the mortgage.
The insurance premium is added to the monthly mortgage payment. The insurance policy is owned by the lender and it is your lender who is the sole beneficiary.
One other important aspect to remember is that if you change your lender, you will need to get new mortgage insurance. Your premiums are most likely to increase.
The premiums are calculated based on the down payment and size of the mortgage. The lump sum will be paid to the bank in the event of the borrower’s death. As the mortgage slowly decreases, so does the insured amount but the premiums stay level.
You will be offered mortgage insurance when you are applying for a mortgage with your bank. Are you required to accept it? Actually, you can shop around for better mortgage insurance so you get better protection.
Don’t confuse bank-owned mortgage life insurance with mortgage default insurance which is mandatory for homebuyers with less than 20% down-payment.
Mortgage default insurance from Canada Mortgage and Housing Corporation (CMHC), Canada Guaranty, and Genworth Insurance, protects the lender in case you default or stop making payments to your mortgage.
Mortgage Life (Group) Insurance
Another convenient way of arranging mortgage protection is with mortgage (group) life insurance. If you die before your mortgage is paid, the benefits will be applied to your mortgage. This ensures your dependents get relief from the mortgage payments and they can continue to own the home.
Because this is a type of group life insurance, the premiums are lower since the risk is distributed among a large group of people. It is also easier to apply for group life insurance through your company or employer.
Personal Life Insurance
Individual life insurance can also cover your mortgage. If you die while covered by the policy, your designated beneficiary can use the cash benefits to pay your mortgage and any other way he or she sees fit. Excess funds can be used to settle other debts such as credit cards, personal loans, etc.
The insured individual, in this case, the homeowner, is the owner of the policy. The term of the life insurance policy is also not related to the mortgage term. As long as the premiums are paid, the policy remains active even after your mortgage is paid.
Individual life insurance offers great flexibility. As the years go by, your needs will change and your insurance coverage can easily be adapted to meet these changing needs.
We want to summarize the main differences of mortgage insurance so you can easily pick the right one for you.
· Mortgage life insurance from banks pays the balance of your mortgage upon your death. The amount of coverage decreases as the mortgage loan is paid. You lose coverage once your mortgage loan is completely paid.
· Individual and group life insurance is not directly linked to your mortgage loan. Your coverage remains in force while premiums are paid. In case of death, the insurance benefits are paid to designated beneficiaries and can be used to pay off a mortgage.
· Bank mortgage insurance is easy to obtain and very few health questions are asked. The premiums are generally higher than regular life insurance.
· Individual and Group life insurance takes longer and may require more health questions. You need to qualify, based on the insurers’ criteria, to get coverage.
Bank mortgage insurance benefits the bank but it cannot protect you the way life insurance can. Your loved ones are still at risk for financial hardship in the event of your death if you don’t have standard term life or group life insurance.
Would you like to know the cost of mortgage insurance? Get FREE and NO-OBLIGATION quotes by filling out the short online form on this page.
First of all, let us clarify that mortgage insurance is not mandatory in Canada. Again, don’t be confused by mortgage default insurance which is mandatory for all high-ratio mortgages (below 20% down payment).
With that said, mortgage insurance is protection for your family when you are no longer around to pay the mortgage payments. Ideally, it goes to your dependents, not creditors.
The cost of mortgage insurance varies depending on the provider you select.
For bank mortgage insurance, the premiums are not affected by your health condition. This type of policy is also not fully underwritten, thus, the premiums are more expensive because it is riskier. Even if you are in the pink of health, your premiums will not be cheaper than other people with health conditions.
Your premiums are generally calculated based on your age and the loan amount.
Examples of bank mortgage insurance:
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* These are sample rates and not actual quotes
Term Life Insurance
For term life insurance, your premiums are affected by factors such as smoking and your health condition. If you pose lower risks, you get lower premiums.
This is the benefit gained from underwriting – you answer health questions so that the insurer can assign an insurance rate based on your personal situation.
Your premiums will also be calculated based on:
· Your age at the time of application
· The insured amount
· Premium rate (affected by factors such as health, gender, credit score, job, etc.)
Check out the table below for average term life insurance based on the amount of your mortgage and age.
Examples of term life insurance prices
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$35 |
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Below is a side-by-side comparison of bank mortgage insurance and term life insurance.
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Bank Mortgage Insurance |
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Savings |
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** For a 35-year old borrower with mortgage loan of $250,000
As you can see, term life insurance is a cheaper alternative to bank mortgage insurance. Your monthly premiums don’t change during the term and will stay level even as your mortgage balance is paid down. You can also continue your coverage even after you have completely paid off your mortgage.
There can be insurances when term life insurance becomes more expensive than mortgage life insurance from banks.
Getting higher coverage than your mortgage
Your term life insurance coverage can be higher than your mortgage amount. Remember that this policy can pay for your mortgage as well as other loans and financial obligations.
If the unexpected happens, your term life insurance benefits can provide your family with more than what they need such as educational expenses, living expenses, etc.
This flexibility is a great feature of term life insurance for mortgage protection that you cannot find in bank mortgage life insurance.
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for mortgage insurance in Canada.
Term life insurance is recommended by most financial advisers and experts for Canadian families. Not only is it more affordable but more importantly, it gives you greater protection.
Below are the 5 advantages of term life insurance over bank mortgage insurance:
· Your dependents are the beneficiary, not your lender
· Your dependents can get more cash benefits to pay off other obligations aside from the mortgage
· The insured amount does not decrease as you pay down your mortgage
· The insurance coverage can continue even after your mortgage is paid up
· You don’t have to get new insurance coverage if you switch lenders
Are you now convinced that life insurance for mortgage protection is better than bank insurance products?
Speak to our insurance partners to get professional advice regarding your mortgage insurance needs.
There is no reason for you to pay expensive premiums for your mortgage insurance. You don’t need to be trapped in a high-cost and low benefit policy from your lender to cover your mortgage.
You can work with a reliable insurance broker who will shop around for the best mortgage insurance policy that suits your needs and budget!
You can get more protection from mortgage insurance with a term life insurance policy that can pay off your mortgage upon your death and leave a legacy for your loved ones.
Get mortgage insurance with:
· Lower monthly premiums
· Level coverage that does not decrease with your loan amount
· Cash benefits for your loved ones
Just fill out the form below and get connected with experienced and reliable insurance brokers for free and no-obligation quotes!
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