No. Mortgage life insurance is optional, and a lender can't insist that you buy it. You can also get coverage from an insurance company or through an agent.
Mortgage Protection
Mortgage Life Insurance: Lender Coverage or Your Own Term Policy?
There are two common ways to make sure your mortgage is handled if you die. Here is how each one works, who gets paid, and what changes if you move or refinance.
What It Is
What is mortgage life insurance?
Mortgage life insurance is optional coverage that can pay off your mortgage if you die. You can buy it from your lender, or buy an individually owned term life policy sized to the mortgage.
It is different from mortgage default insurance, which is required when your down payment is under 20%.
Both options can work. Lender coverage is simple to add. A term policy gives you more control. The right one depends on your health, your budget and what you want the money to do.
If you buy from a lender
- It's optionalA lender can't insist that you buy it
- Your consent is requiredYou must give express consent first
- Charges must be disclosedBanks must also give a separate disclosure statement
- You can cancelThe lender must give you that option. These rights apply to federally regulated lenders
Side by Side
How does lender mortgage insurance compare with term life insurance?
The main differences are who owns the coverage, who receives the money and what happens when your mortgage changes.
| Lender coverage | Your own term policy | |
|---|---|---|
| Who owns it | The lender holds a group policy, and you hold a certificate | You own the policy |
| Who gets paid | The lender, against your balance | The beneficiaries you name |
| Benefit over time | Falls as you pay down the mortgage | Stays the same for the term |
| Premium | Based on your age and the mortgage amount at application, and generally stays the same | Level for the term, then rises at renewal |
| Applying | Health questions, and often a same-day decision if you answer no to all of them | A fuller application, and sometimes a paramedical exam |
| Paying | Added to your mortgage payment | Paid separately to the insurer |
| When the mortgage is paid off | Coverage ends | Continues until the policy ends |
Ownership
Who owns the policy and who gets paid?
With lender coverage, the lender is the group policyholder and the beneficiary. The benefit must go to the mortgage. For some families that's the point: the home is paid off, with no decisions to make.
With a term policy, you own it and name the beneficiary, who can pay off the mortgage, or keep the mortgage and use the money for income or education instead.
The Declining Benefit
What does a declining benefit mean?
Lender coverage pays your outstanding balance, so the benefit shrinks as you pay down the mortgage, while the premium generally stays the same.
A term policy pays the same amount throughout the term, so as the mortgage falls, more of the money is left for your family. Lender plans also have a maximum benefit and an end age in the certificate. On one large bank's current plan, that is $1,000,000 and age 70.
If Your Mortgage Changes
What happens if I move or refinance?
An individual term policy isn't tied to your mortgage, so nothing changes. Lender coverage depends on your certificate, and it generally doesn't follow you to a new lender.
Moving, same lender
Some plans keep coverage in place if the mortgage moves to a new property and stays with the same lender. Check your certificate.
Refinancing
Coverage on new money usually means a new application. New coverage can bring new limits and exclusions from its start date.
Switching lenders
Coverage generally ends when the mortgage moves to another lender. You'd usually reapply, at your current age and health.
Your own term policy
It stays in force through all of these. If the mortgage grows, you may want more coverage, which means a new application.
Is It Right for You?
When lender coverage may fit
The Financial Consumer Agency of Canada notes that term or permanent coverage may provide better value, but that depends on your age and health, so compare real quotes. Check first whether your existing coverage already does the job.
- You want it simpleOne application, with the premium built into your payment
- You want it in place quicklyCoverage can start right away if you answer no to all the health questions
- You want the mortgage cleared, nothing moreThe benefit does exactly that
- Your health makes individual coverage hardLender coverage is worth comparing
When your own term policy may fit
- You may move or refinanceThe policy stays with you
- You want your family to chooseThey decide how to use the money
- You want level coverageThe benefit doesn't shrink with the balance
- Your need outlasts the mortgageSee how much coverage you need
Common Questions
Questions about mortgage life insurance
No. Mortgage default insurance is required when your down payment is under 20%. Mortgage life insurance is optional and pays your balance if you die.
No. The benefit goes to the lender and must be used to pay off the mortgage.
Generally, yes, at any time. Some plans refund your premiums if you cancel within a 30-day review period. Check your mortgage terms first, and keep it in force until any replacement is approved and in place.
Long enough to cover your remaining amortization, and sized with your other needs. Compare 10, 20 and 30 year terms against when the mortgage should be gone.
Lender plans often offer these as add-ons. You can also hold them separately. See critical illness insurance and disability insurance.
We work with clients across Burlington, Oakville, Milton, Mississauga and Hamilton. Many first conversations start with a call to 289.339.8100.
Related Guides
Strategies that often work together
Term Life Insurance
How 10, 20 and 30 year terms work, plus renewal and conversion.
Read the guideHow Much Life Insurance Do I Need?
A clear method for working out your coverage, with an illustrated example.
Read the guideDisability Insurance
What it replaces, how the definitions work, and what to check if you're self-employed.
Read the guideThis information is general in nature and is not tax, legal, accounting, insurance or investment advice. It is based on current Canadian tax legislation, which can change. Any strategy should be designed and reviewed with your accountant and legal advisors based on your circumstances. Lender plans differ, so read your own certificate of insurance. Coverage, premiums and exclusions vary by insurer and policy; the policy or certificate governs.
Mortgage life insurance in Burlington, Oakville, Milton, Mississauga and Hamilton
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