What is Mortgage Life Insurance?
Mortgage Life Insurance, also known as Mortgage Protection Insurance, is a type of Credit Protection Insurance that pays out your mortgage balance (up to the maximum specified in the certificate of insurance) in the event of your death, making it affordable for your surviving spouse and/or family to remain in your home without financial duress. If your family relies on your income to make their mortgage payments, Mortgage Life Insurance is one way to protect their financial future.
Is there a maximum amount of mortgage balance I can insure?
Most policies have a maximum limit on the size of the mortgage balance that can be insured. This maximum amount will be explained when you apply for your Mortgage Life Insurance, and will be documented in your certificate of insurance. But even if your starting mortgage balance is higher than the maximum limit, you can still insure it up to that limit.
Mortgage Life Insurance vs Term Life Insurance
Both types of insurance are good options to protect your family from financial hardship should you prematurely pass away. If you feel your family could not afford to continue to make the mortgage payments on your house in the event of your premature death, or that doing so would compromise their financial future including your children’s education or your spouse’s retirement savings, you should consider purchasing Mortgage Life Insurance, or Term Life Insurance, or both.
Consumers who purchase Mortgage Life Insurance usually have the option to add disability, critical Illness and job loss coverage, to protect their family further against not being able to make their mortgage payments. In addition, you can usually qualify for coverage by completing a short questionnaire, without the need for a medical examination.
Some people choose both insurance options – Mortgage Life Insurance to pay out their mortgage loan balance (up to the maximum specified in the certificate of insurance), and Term Life Insurance to leave their survivors with additional money to use as they wish.
Vicky and Bob, who have two children, have been approved for a $250,000 mortgage to purchase a home. Vicky is the primary income earner, and the family’s ability to make their mortgage payments is largely dependent on her income.
Peace of mind and predictability of expenses are important for Vicky and Bob, so they purchase Mortgage Life Insurance for Vicky, which will pay out the balance of their mortgage (up to the maximum specified in the certificate of insurance) in the event of her death. They like the fact that their premiums will not change over the life of their mortgage, which means that they are not exposed to higher costs for this coverage as Vicky ages or possibly develops health issues.
They also like the fact that the proceeds of her mortgage life insurance will go directly to pay out the mortgage balance rather than possibly being used to pay other debts. It’s important to Vicky that her family will be able to continue living in their family home, without financial duress.
Do I Need Mortgage Life Insurance?
You don’t need any kind of insurance to qualify for a mortgage – that decision is based solely on your credit worthiness for the amount of mortgage you want.
The decision to buy Mortgage Life Insurance should be based on a number of factors including the size of your mortgage, your net worth (including other insurance policies you may have), your overall health, and whether you have dependants living with you whom you want to protect. If you feel your family could not afford to continue to make the mortgage payments on your house in the event of your premature death, or even if they could but their financial future and quality of life would be compromised, you should consider purchasing Mortgage Life Insurance, or Term Life Insurance, or both.
How much does Mortgage Life Insurance cost?
The cost of your Mortgage Life Insurance will be determined by your age at the time of your insurance application and the amount of coverage you wish to purchase. All types of credit protection insurance coverage, including Mortgage Life Insurance, are provided under a group policy rather than being individually underwritten. This means more Canadians can be insured at economical standard group rates.