By Keith Martin, Executive Director, Canadian Association of Financial Institutions in Insurance (CAFII)
Buying a home is one of the biggest financial decisions Canadians make. Along with it comes a host of insurance options—some required, others optional—which can be confusing. One of the most common misconceptions is that mortgage insurance and mortgage protection insurance are the same thing.
They’re not.
Mistaking one for the other could leave you and your family financially vulnerable. For example, mortgage default insurance, often just called “mortgage insurance”, does not protect you or your loved ones if something unexpected happens, such as job loss, disability, or death. Instead, it protects your lender by covering losses if you default on your mortgage.
Mortgage protection insurance, known as credit protection insurance (CPI), on the other hand, also pays the benefit directly to the lender, but it does so on your behalf, if you experience a covered event, to help reduce or pay off your mortgage and protect your family’s financial stability.
CPI is designed to help you and your family by covering the remaining insured amount of your mortgage, up to the maximum specified in your certificate of insurance. That amount may be different from your full outstanding mortgage balance, depending on the terms and coverage you selected.
Why the distinction matters
Confusing mortgage default insurance with mortgage protection insurance can lead to a dangerous gap in coverage. Mortgage default insurance , commonly referred to as mortgage insurance, is mandatory when you put down less than 20% of your home’s value. It’s regulated by the federal government and protects your lender, not you. If you default on your mortgage, the insurer (such as CMHC, Sagen, or Canada Guaranty) reimburses the lender for their loss.
This coverage helps stabilize Canada’s housing market and allows more people to buy homes with smaller down payments, but it won’t help your family stay in the home if something happens to you.
That’s where mortgage protection insurance comes in. CPI gives you peace of mind by helping cover your mortgage payments during difficult times. Without it, or without other forms of personal insurance, you may assume you’re protected when in fact, you’re not.
Understanding the difference helps Canadians make informed decisions, avoid unexpected financial hardship, and ensure their loved ones are covered when it most matters.
Here’s a closer look at how these two types of insurance differ:
What is mortgage insurance?
Mortgage default insurance, commonly referred to as mortgage insurance, is typically required by lenders when a homebuyer makes a down payment of less than 20%. This insurance protects the lender, not the borrower. If a borrower defaults on their mortgage, the insurer (such as CMHC, Sagen, or Canada Guaranty) reimburses the lender for their loss.
Mortgage default insurance is regulated by the federal government and is an important tool for maintaining stability in the housing market. It enables more Canadians to access home ownership with smaller down payments, but again, its purpose is to safeguard lenders, not borrowers or their families.
What is mortgage protection insurance?
Mortgage protection insurance, or credit protection insurance (CPI) for a mortgage, is an optional group insurance product designed to protect the borrower(s) and their family in case of a covered event. These products generally have a very simple application process, normally requiring only a few health questions to be answered. It is offered through financial institutions as well as insurance brokers affiliated with brokerage firms.
If you choose to purchase mortgage protection insurance, it may provide financial support in the event of a covered circumstance, such as death, critical illness, disability, or involuntary job loss. In such cases, the insurer may help pay down or pay off the outstanding balance on your mortgage, or help you maintain your mortgage payments if you are unable to work due to a disability or involuntary job loss. This coverage can reduce financial strain during an already stressful time and help ensure your family can remain in the home.
Unlike mortgage insurance, CPI is for your benefit, not your lender’s, offering peace of mind and financial support in times of crisis.
Importantly, 80% of Canadian homeowners are either uninsured or underinsured when it comes to traditional life insurance coverage (CAFII LIMRA Report 2023). Mortgage protection insurance can play a key role in bridging that coverage gap, particularly for those without adequate personal insurance in place.
The bottom line
Understanding the difference between mortgage insurance and mortgage protection insurance ensures you’re not left with a false sense of security. As you plan for your financial future, talk to your financial institution, insurance broker, or financial advisor to understand what coverage is required, what’s optional, and what fits best with your family’s needs and your broader financial plan.
