Paying for a home is expensive enough. Adding the cost of mortgage life insurance on top of your monthly payments may seem stressful. 

“I got sucked into getting [mortgage] life insurance that I didn’t want when I bought my house,” says Lauren Sheriff, a Toronto-based content creator and mom. “It was a part of the bank’s must-haves for me in order to qualify for my mortgage.”

Lauren did want life insurance to protect her family from mortgage debt, but she wanted it on her own terms. She wanted to choose her own coverage, term length and price.

In this post, we’ll look at how much mortgage life insurance costs in Canada from some of the biggest providers. Plus, we’ll dive into term life insurance as an alternative, and how much that costs as well.

What is mortgage life insurance?

Mortgage life insurance is insurance that covers your outstanding mortgage balance. 

In other words, your insurer will pay whatever’s left on your mortgage to your mortgage provider if you pass away before your mortgage is paid off.

Mortgage life insurance is sometimes called “mortgage insurance” or “mortgage protection insurance.” 

It’s not the same as mortgage default insurance, which is required when you pay less than 20% on a down payment on a home. It’s administered by the Canada Mortgage and Housing Corporation (CMHC).

This crystal-clear explainer video will tell you everything you need to know.

Is mortgage life insurance necessary?

First off, mortgage life insurance isn’t mandatory in Canada

It’s necessary in that mortgage life insurance protects your family from worrying about making mortgage payments in the unlikely event you’re not around to make those payments.

You and your partner may have chosen the best home your could afford.

It may also mean you need both incomes to cover the mortgage payment. 

Mortgage protection insurance is a step you can take to make sure your mortgage will always be paid off and that there’s never any stress around how to cover payments.

25% of Canadian families (with kids under the age of 18) have mortgage life insurance, according to our recent survey.

That said, term life insurance is a better option for most Canadian families as the money goes to families, not creditors.

Learn more about Lauren’s journey with mortgage life insurance:

How much does mortgage life insurance cost?

How much mortgage life insurance costs depends on the provider you choose. Your premiums will also depend on:

  1. Your age when you apply for the policy
  2. The initial insured amount of your mortgage
  3. The premium rate

Mortgage life insurance rates change from year to year. But the table below gives you an example of mortgage life insurance premiums based on 2021 rates. 

This table shows the monthly mortgage life insurance rate based on age at the time of application and mortgage amount.

Age Mortgage Amount TD mortgage life insurance rate per month
30 $250,000 $25
$500,000 $50
$1,000,000 $100
35 $250,000 $35
$500,000 $70
$1,000,000 $140
40 $250,000 $52.50
$500,000 $105
$1,000,000 $210
45 $250,000 $75
$500,000 $150
$1,000,000 $300

As you can see, mortgage life insurance rates are more expensive the older you are when you apply. They’re also more expensive the bigger your mortgage is.

Cost comparison (mortgage amount):

  • 30 years old, $250,000 mortgage: $25 per month
  • 30 years old, $500,000 mortgage: $50 per month

Cost comparison (age):

  • 30 years old, $250,000 mortgage: $25 per month
  • 40 years old, $250,000 mortgage: $52.50 per month

Why is mortgage life insurance so expensive?

Unlike other types of life insurance, mortgage life insurance premiums aren't based on your health. This type of insurance is not fully underwritten. 

Quick explainer: underwriting means the insurance company asks about your health and decides, based on their own data, how risky you are to insure. Less risky=cheaper premiums. More risky=more expensive premiums.

Even if it is underwritten, The Globe and Mail notes that:

“...mortgage life insurance is typically underwritten post-claim. That means that eligibility is often only determined and medical records only scrutinized when it comes time for a payout. And people can be denied at that point.”

Skipping underwriting and getting mortgage life insurance could be a good option for you if you have an existing medical condition that would make regular life insurance very expensive or challenging to get. 

On the flip side, relatively healthy people get lower premiums with term life insurance. 

Example

  1. You apply for mortgage life insurance. 
  2. You don't smoke.
  3. You don’t get a better rate even though you’re less of a risk to your insurer. 

With term life insurance, if you don’t smoke, you get a lower rate. You’re less of a risk, so you get a lower price.

That's the catch for the convenience of skipping the medical exam or medical history questionnaire during the application process.

Is term life insurance a cheaper alternative?

Term life insurance is generally cheaper than mortgage life insurance.

What is term life insurance?

  • Term life insurance is a type of life insurance that offers coverage for a fixed period, usually 10 or 20 years. 
  • You pay premiums during the policy term.
  • If you pass away during the policy term, your loved ones receive the death benefit as a tax-free payment. 

It’s the most affordable type of policy and allows you to adjust the amount of insurance coverage to what you need as your life changes over time. 

For example, you can have more coverage ($1,000,000) when your mortgage balance is high but then opt for less coverage ($250,000) later in life when your financial obligations decrease, and you can afford higher monthly payments.

Read more in our post on the differences between mortgage and term life insurance

Cost of mortgage life insurance versus term life insurance

Let's take a look at the table below. It shows both TD's monthly mortgage life insurance rates and PolicyMe’s monthly term life insurance rates.

The rates are based on age at the time of application and the life insurance coverage amount ($250,000, $500,000 etc.). 

Note that the term life insurance rates are based on a 20-year policy for a male non-smoker.

Age Mortgage Amount TD mortgage life insurance rate per month Manulife term life insurance rate per month
30 $250,000 $25 $20
$500,000 $50 $34
$1,000,000 $100 $61
35 $250,000 $35 $22
$500,000 $70 $35
$1,000,000 $140 $65
40 $250,000 $52.50 $30
$500,000 $105 $50
$1,000,000 $210 $94
45 $250,000 $75 $47
$500,000 $150 $80
$1,000,000 $300 $153

As you can see, term life insurance is cheaper across the board vis-a-vis mortgage protection insurance.

Another thing: your monthly mortgage insurance premiums don’t decrease even when your outstanding balance is paid down and your amortization period reaches the end. 

Interested in seeing how much term life insurance might cost you

PolicyMe has streamlined the traditional insurance process, removing unnecessary costs so we can provide a lower rate than other policies in Canada. Get your quote right now, in seconds.

When term life insurance isn’t the cheaper option

Term life insurance can be more expensive than mortgage life insurance.

Remember: mortgage life insurance policies only cover the outstanding balance and the amortization period of your mortgage.

Your family may need to pay for a lot more than a mortgage if the unexpected happened. 

There may be other loans to pay back, college to save for, retirement to consider. And your family may not have the savings to cover them.

Example: You could pay $25 a month for $250,000 in coverage for mortgage insurance versus $60 per month for a $1M term life policy. Then again, you’d get a much bigger death benefit.

Real-life example #1: Monica in Vancouver, BC

Monica is a 30-year-old pregnant woman who lives in Vancouver and is actively looking to buy a house. 

She heard about life insurance in a podcast ad and wonders if she needs it to cover her monthly mortgage payments in case something happens to her. 

Mom and baby in forested area for article titled How Much Does Mortgage Life Insurance Cost in Canada

She and her partner have many costs coming up with a new house and baby, and they rely on both their incomes to cover their living expenses. 

Price and coverage are her main concerns. She needs to know how much mortgage life insurance is going to cost per month. 

Monica needs $250,000 in coverage. She’ll pay:

  • $25 per month for mortgage life insurance
  • $20 per month for term life insurance

Over a year, she’ll pay an extra $60 for mortgage life insurance. The difference works out to an additional $1,200 over 20 years.

Then again, an extra $60 per year isn't that much if mortgage life insurance is right for you and your family. You'd probably spend more than that if you went out for dinner as a family.

Real-life example #2: Ali in Oshawa, Ontario

Ali is 40 years old and lives in Oshawa, ON. He has two kids under 10 years old and still has 15 years of a mortgage to pay off. 

Ali wants to make sure his family is protected from financial hardship and his mortgage payments are covered if anything were to happen to him. 

He’s also realized that the older he gets, the more expensive premiums are, so there's an urgency to getting a policy now. 

Father and daughter washing hands in sink for article titled How Much Does Mortgage Life Insurance Cost in Canada

At 40 years old and needing $1,000,000 of coverage, Ali will pay:

  • $210 per month for mortgage life insurance
  • $94 per month for term life insurance

The difference works out to an extra $1,392 each year or $27,840 over 20 years for mortgage life insurance.

That's huge! Ali can consider spending the difference on home renovations, savings for his kids’ education or annual vacations, all of which could add a lot to his family’s quality of life.

Why term life insurance is (usually) the better option

Term life insurance is the better option for most Canadian families.

It’s usually more affordable. But price isn't the only reason we typically recommend buying term life insurance instead of mortgage protection insurance.

Here are five advantages of term life insurance over mortgage life insurance:

1. The beneficiary is your family, not the bank.
It’s an important difference, as a mortgage insurance payout just goes to the financial institution that holds your mortgage. So your beneficiaries won’t receive any of the money.

2. Your family can pay off debts and expenses other than your mortgage.
In other words, your loved ones can take care of all the expenses they need to, including the mortgage, instead of just having their mortgage paid off.

3. The death benefit comes to your beneficiaries as a tax-free lump sum.
They can use this money any way they like, from immediate expenses to mortgage payments to longer-term investments.

4. Your death benefit doesn't decrease over your policy term.
A term life insurance policy might pay out $500,000 if you passed away in the first year of the term, or $500,000 if you passed away 15 years later. With mortgage insurance, remember the payout will only be the amount of your mortgage, whether that is $500,000 or $50,000.

5. You can keep the policy if you switch mortgage providers.
Over the years, you may change mortgage providers, change your bank or financial institution, use a broker to find a better mortgage rate or move. You can keep a term life insurance policy throughout these transitions.

6. Your coverage can extend beyond the length of your mortgage term.
A term life insurance policy can cover your mortgage costs if necessary but can also extend beyond it. For example, your beneficiaries would still receive the death benefit from a term life insurance policy if you pass away in the years afterward. 

Term life insurance also allows you flexibility in how you structure your coverage and premiums. 

For example, you could:

1. Try a “set it and forget it” solution where you simply purchase term life insurance for 20 or 30 years, depending on the length of your mortgage. You might pay more monthly, but you won’t have to worry about it for the rest of your mortgage term.

2. Alternatively, you could opt for a more strategic and flexible approach by purchasing a 10-year policy for a lower cost for half or ¾ of your mortgage. Your premiums will be relatively low for this first term, after which you can purchase a second term to cover the balance.

In summary: term life insurance offers better, more flexible protection than mortgage insurance

It’s easy to see from the tables above that term life insurance is usually cheaper than mortgage life insurance. And sometimes, it's cheaper by a lot.

In short, if you're looking for broad coverage that's flexible and affordable, pass on mortgage life insurance and buy a term life insurance policy instead. 

That said, mortgage life insurance could be a good option for your family if you have an existing medical condition. In that case, standard life insurance may be unaffordable or unavailable to you.

Ready to see how affordable term life insurance can be? Get your quote today.

We’re not only affordable: PolicyMe is backed by Canadian insurance giants, with coverage options from $100,000 to $5M.

Questions? Talk to one of our Toronto-based, licensed advisors via chat, email or phone. No strings attached.


Laura McKay

COO & Co-Founder

Laura brings 7 years of experience working in insurance & strategic operations as a management consultant at Oliver Wyman, after experiences at Manulife and Munich Re. In 2017, she launched a successful initiative for the World Economic Forum focused on innovation in insurance, working closely with insurers, tech pioneers, and policy-makers.

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