Life Insurance for Mortgages and Home Loans In Ontario Canada

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There are a lot of people that have invested in the purchase of their homes. Many of these individuals end up having to carry a mortgage to pay for it. One of their concerns is what happens to their family if a death occurs. In respect to the individuals responsible for the payment of the mortgage. The mortgages expense is usually one of the major expenses that the average family has.

What is Mortgage Life Insurance?

There is a simple explanation for mortgage life insurance. It pays your mortgage in the event of your death. Individuals that do not have this insurance take the risk of leaving it as a burden on the family. Many individuals buy their mortgage products from their banks. Or other lending institutions that specialize in mortgages. Quite often these lending institutions become affiliated with specific insurance companies. Those insurance companies are willing to provide mortgage insurance. Some of the larger institutions have their insurance products for this purpose. Upon the death of the insured the mortgage insurance will pay the balance of the mortgage owed. It does not pay out any additional insurance. Unless some of the insurance companies are offering additional benefits.

Is Mortgage Insurance Required in Canada?

The answer is it all depends. When one buys a house, they have to put a down payment on the house. This percentage gets based on the sale price of the home. Some individuals can only afford to put down maybe 10%, for example. If one puts down any less than 20%, then they must have mortgage insurance. This mortgage insurance comes from The Canada Mortgage and Housing Corporation. This insurance covers the event of the mortgage borrower defaulting on the loan. This is mortgage default insurance. It is not mortgage life insurance.

What Does Mortgage Life Insurance Cover?

Insurance to cover a mortgage as a result of the death of the mortgage borrower is a form of Life insurance. But only covers the principal owed on the house at the time of death. It is not compulsory in Canada. This type of insurance is referred to as mortgage protection insurance.

Mortgage Protection Insurance

There are some who do not have this type of insurance. If they were to die their estate then becomes responsible for paying the mortgage. The beneficiaries who inherited the home would now become responsible for paying the mortgage. This can be complex. As there may be joint owners on the mortgage. Or a co-signer on the mortgage. In this case, it may become their responsibility to now pay the mortgage.

What is Home Loan Life Insurance?

This is another term that is often used for mortgage protection insurance. It refers to life because the coverage it provides is only paid out on upon the death of the mortgage holder.

Do I Have Mortgage Life Insurance?

You may assume when you take out a mortgage that it is automatically going to include mortgage insurance. This is because many time mortgage insurance payments are included in the mortgage payments. You will not have mortgage insurance unless you specifically opted into it.

Many mortgage companies will try to encourage you to buy mortgage protection insurance. Most often they provide this type of insurance themselves. Or they have affiliated with insurance companies that do. A lot of times the borrowers will automatically opt into this insurance because it is convenient. They feel comfortable knowing the mortgage will be covered in the event of their death. This way there is no burden being put on their family or loved ones.

Are There Problems with Mortgage Protection Insurance?

One of the reasons many people take this form of insurance is for convenience. Their mortgage lender is looking after all the details for them. The individual doesn’t have to go shopping for insurance. Once this insurance is in place, the mortgage holder feels that everything has been taking care of. However, there can be some technical difficulties with this type of insurance. It all depends on the way that it is underwritten. The underwriting of a policy means that the insurance provider is going to use a set of metrics to determine the premium cost. These metrics are usually the same as what is used for other types of insurance such as standard life insurance.

There can be a difference if a post-claim underwriting system is used. What this means is that the eligibility for the claim payout is only considered after the death of the mortgage holder. Insurance companies using this process can decide that the individual did not qualify.

Other Mortgage Life Insurance Options

Another way of making sure that the mortgage is covered in the event of death is to take out a standard life insurance policy. This means the insured can name the beneficiary. If it is meant to cover the mortgage, then the beneficiary would be the individual who will be inheriting the house. They can then take the proceeds from the life insurance and pay out the mortgage. Some mortgage holders may be concerned that their beneficiary may not do this. In that case, they feel more comfortable with having the mortgage protection insurance. In this case, the beneficiary is the mortgage provider themselves. The money gets paid out to directly to them and not the individual who is inheriting the property.

Cost Factors

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One of the other disadvantages of mortgage protection insurance is the value of the coverage itself. Throughout a mortgage, individuals are paying down the principal with their monthly payments. This reduces the amount owed on the mortgage. At the same time, the mortgage insurance is reducing in value as well. While this is taking place, it doesn’t mean that there is any reduction in the premiums being paid. So when the mortgage is paid off in its traditional sense the value of the mortgage insurance is zero. This is different than what it would be with term life insurance. Which would still have a value even when the mortgage is paid off as it is not directly related to the mortgage itself.

Basically, anyone that is taking out a mortgage has to think seriously as to the type of protection they want. Many will find that buying traditional life insurance or term life insurance is a better choice. However, for some limited individuals, the mortgage protection insurance may be a better option for them.

Resources

https://www.sunlife.ca/ca/Learn+and+Plan/Money/Insuring+your+life/Do+you+need+mortgage+insurance
https://www.whichmortgage.ca/article/mortgage-life-insurance-explained-217283.aspx
https://www.cmhc-schl.gc.ca/en/co/moloin/moloin_010.cfm
https://www.huffingtonpost.ca/tea-nicola/mortage-insurance-reason-why_b_8113364.html
https://globalnews.ca/news/3488311/mortgage-life-insurance-canada/

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