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Optional mortgage insurance products

From: Financial Consumer Agency of Canada

What are optional mortgage insurance products

Optional mortgage insurance products are life, illness and disability insurance products that can help make mortgage payments, or can help pay off the remainder owing on your mortgage, if you:

Optional mortgage insurance is a type of credit and loan insurance that you're usually offered when you take out or renew a mortgage. You don’t need to purchase optional mortgage insurance to be approved for a mortgage.

The lender cannot insist that you buy mortgage insurance. You must give your express consent to obtain this product.

Learn more about giving express consent for optional products and services.

Make sure that the insurance meets your needs in terms of protection. If your lender is a federally regulated bank, they must offer and sell you products and services that are appropriate for you, based on your circumstances and financial needs. They also must tell you if they’ve assessed that a product or service isn’t appropriate for you. Take the time to describe your financial situation to ensure you get the right product. Don't hesitate to ask questions and make sure you understand the insurance product you have or want.

There are important limits on the coverage that optional mortgage insurance products provide. Read your policy carefully and ask questions if there’s anything you don’t understand before purchasing these products.

These optional products are different from mortgage loan insurance that you are required to purchase if your down payment on your home is less than 20%.

Learn more about credit or loan insurance.

Mortgage life insurance

Mortgage life insurance is an optional product that may pay the balance on your mortgage to the lender upon your death. This product is optional. It can be useful if you have dependents or a spouse who might like to stay in your home after your death, but who might not be able to continue making the same mortgage payments as before.

Before you buy mortgage life insurance, check if you already have insurance coverage that meets your needs through your employer or another policy.

Keep in mind that your home can be sold to pay back the mortgage, so mortgage life insurance may not be necessary for you.

How much mortgage life insurance costs

You pay a fee called a premium, based on the amount of your mortgage and your age. Premiums are usually added to your regular mortgage payments.

As you pay down your mortgage, the premiums generally remain the same, even though you’ll owe less on your mortgage over time.

Where to get mortgage life insurance

You can buy mortgage life insurance through your mortgage lender, or through another insurance company or financial institution. Shop around to make sure you’re getting the best insurance to meet your needs.

Your lender can't force you to buy a product or service as a condition for getting another product or service from them. This is called coercive tied selling.

Mortgage life insurance vs term or permanent life insurance

As you pay down your mortgage, mortgage life insurance covers a smaller amount of money.

Term or permanent life insurance may provide better value than mortgage life insurance. With term or permanent life insurance, the death benefit, or amount payable to your beneficiaries, won't decrease over the term of the policy. Upon your death, your beneficiaries may use the insurance money to pay for the mortgage.

Table 1: Compare mortgage life insurance and term or permanent life insurance
  Death benefit Beneficiary Premiums
Mortgage life insurance
  • The amount of the death benefit (the amount your beneficiary will receive) is equal to your outstanding mortgage balance.
  • The death benefit decreases as you make mortgage payments and reduce your outstanding balance.
  • The death benefit must be used to pay off the mortgage.
  • The mortgage lender is the beneficiary of any mortgage life insurance policy.
  • The mortgage lender receives the death benefit, not your family or heir(s).
  • As you pay down your mortgage, the premiums generally remain the same, even though you'll owe less on your mortgage over time.
  • Premiums are based on:
    • your age when you apply
    • the amount of your mortgage when you apply

 
Term or permanent life insurance
  • You choose the amount of coverage or death benefit.
  • The death benefit remains the same as long as the policy is in effect.
  • The beneficiary may use the money they receive for any purpose.
  • You name the beneficiary who you want to receive the death benefit.
  • The death benefit is paid directly to the beneficiary you name.
  • Premiums may be fixed or increase with age, depending on the type of policy.
  • Premiums are based on certain criteria, such as:
    • your age when you apply
    • your gender
    • your medical history
    • the amount of coverage you're requesting

Mortgage disability and critical illness insurance

Mortgage disability and critical illness insurance may make mortgage payments to your lender if you can't work due to a severe injury or illness.

Mortgage disability and critical illness insurance is usually a combination of several insurance products, including:

Most insurance plans have a number of conditions attached to them, including a specific list of illnesses or injuries that are covered or excluded. Pre-existing medical conditions are usually not covered. These terms and conditions of insurance are listed in the insurance certificate. Ask to see the insurance certificate before you apply, so you understand what the insurance covers.

Before you buy mortgage disability or critical illness insurance, check if you already have insurance coverage that meets your needs through your employer or another policy.

How much mortgage disability and critical illness mortgage insurance costs

You will pay a fee called a premium based on the amount of your mortgage and your age. You pay this premium monthly for the term of your mortgage.

Where to buy mortgage disability and critical illness mortgage insurance

You can buy mortgage disability and critical illness insurance through your mortgage lender, or through another insurance company or financial institution. Shop around to make sure you’re getting the best insurance to meet your needs.

Your lender can’t force you to buy a product or service as a condition for getting another product or service from them. This is called coercive tied selling.

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