How Much Mortgage Life Insurance Costs in Canada
What is mortgage life insurance?
Mortgage life insurance is an optional type of insurance policy, costing between $40 and $160 per month on average. You pay a monthly premium based on your age and mortgage balance, and the policy guarantees that your mortgage will be paid off if you pass away with an outstanding balance.
Mortgage life vs. term life insurance: With mortgage life in Canada, your policy’s lump sum benefit is paid directly to the bank or lender. With traditional life insurance, the tax-free lump sum payout goes to your chosen beneficiaries (who can use it to pay off the mortgage, if they want).
Mortgage life insurance is optional and considered less practical than traditional life insurance:
- Payout decreases over time as you pay off your mortgage balance
- Premiums stay the same over time, even as payout decreases
- Coverage is tied to the mortgage, so policy is terminated if you move or switch lenders
A better option, if you’re concerned about your family’s ability to pay the mortgage if you pass away, is term life insurance.
Mortgage life insurance is not mandatory in Canada. It is an optional type of life insurance that you can purchase through your bank, lender, mortgage broker, or credit union.
How much does mortgage life insurance cost in Canada?
The cost of mortgage life insurance is between $40 and $150 for most people, though it varies based on a number of factors including:
- Your age (priced on an age range)
- Your provider (lender or bank)
- Your mortgage balance at the time of purchasing coverage
These elements often result in higher premiums for mortgage life insurance, especially compared to standard life insurance costs.
For context, here’s a comparison of average starting monthly premiums for mortgage life insurance, based on a 20-year, $500K policy for a 35-year-old non-smoking woman.
Why does mortgage life insurance cost so much?
Mortgage life insurance is generally costly because the insurance provider assumes everyone has the same level of "risk,” reports The Globe and Mail. In other words, it is often underwritten after a claim is made.
1. Post-claim underwriting increases insurer risk – and they pass that cost on to you.
Without medical underwriting before your policy is issued, you’re treated the same as every other applicant regardless of whether you smoke a pack of cigarettes a day or exercise daily.
Without health risk information, the same rates apply to all applicants so must be higher to account for the higher-risk policyholders. If you are of average health, you’re not getting the most affordable coverage possible if you choose mortgage life insurance. In fact, healthy applicants subsidize the higher-risk borrowers in exchange for the convenience of an off-the-shelf policy.
2. Pricing is minimally personalized—and it stays the same while your protection shrinks
Premiums are also influenced by your age and by the size of your mortgage balance when you apply, with rates ranging between 2.8% to 4% of your mortgage amount. Today’s homebuyers often have bigger mortgages due to the housing market, pushing up rates.
Your premiums usually stay level. However, the payout actually decreases over time, as you pay off your mortgage. This is a simpler way to administer insurance, with no adjustments as risk changes.
This is great for the lender, as they benefit from declining risk over time. But you wind up paying for that simplicity. Lender convenience means that your steady premium goes directly into the pockets of the company, even as your mortgage balance goes down.
The payout for standard life insurance typically remains the same throughout the life of the policy, but mortgage life insurance payouts decrease as you pay off your mortgage balance, and premiums stay the same. This means you’re paying a fixed rate for coverage that decreases over time, which is why people see better value in standard term life insurance with fixed coverage.
Cost comparison: term life insurance vs. mortgage life insurance
Term life insurance is typically more affordable than mortgage life insurance. In fact, you can save up to $22,497.60 over a 20-year amortization period by choosing term life insurance instead.
We’ve pulled quotes for both policy types to give you a realistic idea of the monthly premiums between mortgage life insurance (using TD mortgage life insurance as an example) and 20-year term quotes for $500,000 in coverage for a non-smoking woman. Take note that these are average starting rates for applicants of average health.
On top of being cheaper, term life coverage generally doesn’t decrease over time like mortgage life insurance coverage, so you’re not paying for less protection with every payment.
Term life insurance also provides a flexible tax-free lump sum payout for your loved ones to use however they choose, which can include paying off your mortgage and tending to other financial responsibilities. On the other hand, mortgage life insurance pays a lump sum directly to your bank or lender, covering only your mortgage.
In short, term life insurance offers more value for its price, and it can provide peace of mind that your family is financially protected if you pass during the term.
Why is term life insurance more affordable?
Term life insurance premiums are cheaper for two reasons: underwriting and coverage length.
- Term premiums are based on your personal risk level. You pay less if you’re healthy.
- Term premiums stay the same over time, as does the payout.
- Term coverage is only for a set period of time. You only pay for what you need.
Mortgage life insurance is far more expensive because it’s not customized to your risk.
- Mortgage insurance uses simplified pricing that assumes risk.
- Mortgage insurance premiums stay the same over time, but the payout shrinks.
Term life insurance is roughly 2-3x more affordable than mortgage life insurance, which could add up to thousands of dollars.
Mortgage life insurance cost: example scenarios
Let’s look at a few common scenarios to give you a better idea of the cost of life insurance for the average homeowner who has eligibility for both types of coverage.
- Profile: Both age 30, non-smokers, $650,000 mortgage balance.
- Estimate mortgage life insurance cost: $160 per month combined (coverage shrinks as mortgage is paid off).
- Estimate term life insurance cost: $35 per month per person or $70 combined for two 30-year term policies with $650,000 in coverage.
- Best choice: Term life insurance. Over 30 years, Miranda and Gale could pay thousands of dollars more for shrinking mortgage life insurance, but term life helps them each lock in leveled protection and keep more money in their pockets.
- Profile: Age 40, smoker, $400,000 mortgage
- Estimate mortgage life insurance cost: $120 per month (coverage shrinks as mortgage is paid off).
- Estimate term life insurance: $105 per month for a 20-year term policy with $400,000 in coverage.
- Best choice: Term life insurance. Hameed will save around $15 per month with a term policy, which can add up to thousands of dollars over 20 years. His beneficiaries will also have more flexibility to use the death benefit however they please.
- Profile: Age 62, non-smoker, recently retired, $250,000 mortgage on a recreational property
- Estimate mortgage life insurance cost: $145 per month (coverage shrinks as mortgage is paid off).
- Estimate term life insurance: $170 per month for a 10-year term policy with $250,000 in coverage.
- Best choice: It depends (and insurance may not be necessary at all. Gaeton only needs coverage for a short time. If he has sufficient savings or his heirs can sell the property if needed, then insurance may not be needed. If Gaeton has concerns that the cottage will be a burden on his heirs, he should review overall estate plans and cash reserves — MLI may be appropriate.
When is mortgage life insurance worth it?
Having some form of life insurance coverage is definitely worth it if you’ve got a mortgage and financial dependents, but it’s important to think through whether term or mortgage life insurance meets your needs best.
What are you trying to protect?
- Only the mortgage balance? Mortgage life insurance may be worth it.
- Mortgage balance plus income replacement? Broader coverage (like term policies) may work better.
Who do you want to receive the payout?
- Lender? Mortgage life insurance will do this.
- Family? Personal life insurance gives you control to choose your beneficiaries.
Do you need fixed or declining coverage?
- Shrinking over time? Get mortgage life insurance.
- Steady coverage? Choose personal life insurance.
Do you need guaranteed approval?
- Yes? Mortgage life insurance offers easier upfront approval — but post-claim underwriting applies.
- No? You can apply for fully underwritten term insurance (or simplified issue term coverage).
Mortgage life insurance may be worth it if you’re purely trying to protect your mortgage payoff, and you don’t mind paying the same rate over time as your payout diminishes.
Since mortgage life insurance isn’t medically underwritten when it’s first purchased, some people see it as a good option if they can’t qualify for standard life insurance. However, this can lead to a denied claim in the future — and there are other, more reliable alternatives to protect your family and your assets.
What to consider before buying life insurance for your mortgage
Mortgage life insurance can be a costly commitment, so before you sign up for coverage, ask yourself these questions:
- Who gets the payout? With mortgage life insurance, it’s the bank. Opt for term life coverage if you want flexible protection for your loved ones.
- Will my coverage last? Your mortgage life coverage will end if you move, switch lenders, refinance, or pay off your mortgage. Standard life insurance sticks with you, regardless of your mortgage status.
- Am I okay with paying the same premium for less coverage? Keep in mind that your mortgage life insurance coverage will shrink as your mortgage balance decreases, but your premiums are fixed.
- Have I checked term life rates first? Term life insurance is usually cheaper and more flexible than mortgage life insurance.
- Do I need coverage for things outside of my mortgage? Term life can also provide for childcare expenses, education, replace lost income, or other debts.
Bottom line: Term life insurance almost always beats mortgage life insurance for flexibility, affordability, and financial support for your family.
FAQs: Average mortgage life insurance cost
Jaya is a researcher and writer with 3 years of experience in insurance and finance. She writes in-depth content that bridges technical expertise with accessible insights. Her work spans topics such as life insurance, health and dental coverage, car insurance, and financial literacy, helping Canadians make informed decisions about their financial protection. With a background in market research and editorial strategy, she collaborates closely with subject matter experts to ensure accuracy, clarity, and value in every piece.
Jaya is a researcher and writer with 3 years of experience in insurance and finance. She writes in-depth content that bridges technical expertise with accessible insights. Her work spans topics such as life insurance, health and dental coverage, car insurance, and financial literacy, helping Canadians make informed decisions about their financial protection. With a background in market research and editorial strategy, she collaborates closely with subject matter experts to ensure accuracy, clarity, and value in every piece.