Paying for a home is expensive enough. Adding the cost of mortgage life insurance on top of your monthly payments may seem stressful. Your bank is pushing this product, but do you really need it?
Mortgage life insurance is also referred to as mortgage protection insurance. In this post, we’ll look at how much mortgage life insurance costs in Canada from some of the biggest providers. And we’ll dive into term life insurance as an alternative and how much that costs as well.
How much mortgage protection insurance costs depends on the provider. Your premiums will also depend on:
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.
Mortgage life insurance rates are more expensive the older you are when you apply. Rates are also more expensive the bigger your mortgage is.
Cost comparison (mortgage amount):
Cost comparison (age):
Unlike other types of life insurance, mortgage life insurance premiums aren't based on your health. This type of insurance is not fully underwritten.
Underwriting means the insurance company asks about your health and decides, based on their own data, how risky you are to insure. 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 when it comes time for a payout. And people can be denied at that point.”
Skipping underwriting and getting mortgage protection 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. But if you're relatively healthy, which most people are, you won’t get a cheaper rate from mortgage life insurance.
Relatively healthy people get lower premiums with term life insurance.
Term life insurance is generally cheaper than mortgage life insurance/mortgage protection insurance.
What is term life insurance?
Term life insurance tends to be the most affordable type of policy. And it allows you to adjust the amount of insurance coverage to what you need as your life changes over time.
We want customers to feel confident that their policy and its rate are exactly what they need to protect their loved ones and their budget.
By streamlining inefficient steps and their costs from the application process, we are able to offer the lowest rates in Canada.
Let's take a look at the table below. It shows monthly rates for both TD's mortgage life insurance and PolicyMe’s term life insurance.
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.
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. You pay the same in mortgage insurance premiums every month, even when your mortgage is almost paid off.
To learn more, read our reviews of the cheapest life insurance in Canada (as well as some pricier options).
Term life insurance is best suited 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:
With technology, PolicyMe is able to deliver the same quality, underwritten coverage in fewer steps.
At our core, we believe that getting term life insurance shouldn't complicated. So, we've made it simple. Receive an instant quote, apply in minutes and find out if you’re approved right away. No waiting and no hassle.
Let's get into some real-life scenarios to see how different life insurance needs play out. 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.
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 protection insurance is going to cost per month.
Monica needs $250,000 in coverage. She’ll pay:
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.
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.
At 40 years old and needing $1,000,000 of coverage, Ali will pay:
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.
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.
But your life insurance should protect your family, and they 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.
You could go with a higher-coverage term policy, which could mean a more expensive monthly premium.
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.
To learn about different types of mortgages, read our comprehensive guide on Fixed vs Variable Mortgages.
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.
But term life insurance is a better option for most Canadian families as the money goes to families, not creditors.
“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.
Learn more about Lauren’s journey with mortgage life insurance:
If you have a mortgage and a young family, having some sort of coverage for your mortgage only makes sense. It’s easy to see from the cost comparisons 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.
Ready to see how affordable term life insurance can be?