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Life Insurance
Universal vs. Term Life Insurance: Which Is Better? (2022 Guide)
November 15, 2022
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8 minutes
Key takeaways:
We know your lender is probably pushing mortgage life insurance. So let's dig into whether you actually need it or not.
Mortgage life insurance is not mandatory in Canada.
While you don't have to have mortgage life insurance, you'll want to consider some form of insurance if you have people who depend on you financially.
It's not fun, but it's smart to think about what might happen if you can’t pay your mortgage.
You want to make sure that even in the face of disability, critical illness or premature death, your mortgage is covered. We recommend term life insurance.
Mortgage insurance is mandatory in Canada if your down payment is less than 20% of the purchase price of a home.
Mortgage insurance is sometimes called mortgage default insurance or CMHC insurance, since it's issued by the Canada Mortgage and Housing Corporation.
Mortgage default insurance protects your lender in the event you can’t pay; it exists so that lenders can protect their cash flow.
The good news is you don’t need life insurance to get a mortgage.
Mortgage insurance products provided by your bank or mortgage lender will just pay off debt related to your mortgage.
Your beneficiaries can't use the funds for anything else. Your lender usually will add the mortgage life insurance premiums on top of your regular mortgage payments.
You need mortgage life insurance:
Insurers usually don't perform detailed health assessments for mortgage life insurance, so you're more likely to get approved. That said, it's best to apply for term life insurance first. If you're approved, you're likely to pay lower monthly premiums.
You need term life insurance:
There are a number of optional mortgage insurance products in Canada, including life, disability and critical illness insurance.
The Financial Consumer Agency of Canada defines them as optional because the lender cannot make you buy any of these products as a condition of getting another service or product from them.
Meaning, a lender can't make you buy mortgage life insurance as a condition of getting a mortgage.
Purpose: It pays off your balance if you pass away. The money can only be used to pay off your mortgage.
Pros:
Cons:
Purpose: Your beneficiaries can use the death benefit for whatever they want, including paying off the mortgage.
Pros:
Cons:
Purpose: Your mortgage payments are covered if you can't work due to illness or injury that results in disability.
About mortgage disability insurance:
Purpose: Can pay for your mortgage when you become critically ill.
About critical illness disability insurance:
About critical illness insurance:
Traditional mortgage life insurance, bundled with critical illness insurance isn’t a great idea for the average Canadian.
Erik continues: “You’re paying for a more expensive product with less comprehensive coverage and much more stringent payout conditions.”
PolicyMe has some of the lowest term life insurance rates in Canada, so your loved ones can cover the mortgage if you pass away.
Applying can take 20 minutes (or less!) and you can apply for the most comprehensive critical illness coverage — with 44 illnesses and conditions — at the same time.
Purpose: Takes care of your monthly mortgage payment when you become unemployed. It's different than the government-provided Employment Insurance (EI).
About job loss insurance:
The truth is ensuring your loved ones have the cash flow to pay for their home ultimately makes financial common sense.
But while many parents think they need mortgage life insurance to do this, that's often not the case.
To help plan your budget, we’ve put together the dollars and cents to show the difference between the costs of mortgage life insurance and term life insurance.
Meet Christine, a 30-year-old non-smoker with a $300,000 mortgage living in Windsor, Ontario. Here is what she’ll pay for mortgage protection insurance:
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Here is what she’ll pay for term life insurance:
This is why term life insurance is worth it compared to mortgage insurance: because it pays out your family instead of your lender.
If your loved ones choose to pay off the mortgage, they can keep the remaining death benefit to cover immediate and future costs, from daycare to your little one’s college education.
Curious about how wallet-friendly term life insurance is? We've taken the fuss out of finding an affordable quote with our online calculator.
Mortgage life insurance isn't necessary. It is the last resort when you can’t qualify for a term life insurance policy due to your medical history.
The upside to pure mortgage protection is that it can be easier to get approved because there’s no medical exam required, like with a no medical policy.
Since mortgage insurance doesn’t require a complete picture of an applicant’s health, providers blend rates to accommodate high and low-risk folks.
Using Christine’s $300,000 mortgage as an example, here’s a snapshot of how rates differ between mortgage insurance and term life insurance:
Mortgage life insurance may not be a must-have in the eyes of the law but there’s also more to lose if you do get it.
Both the mortgage balance and coverage will decline over time, as you get older the cost will increase, and once the mortgage is paid off, you won’t have any benefit for your loved ones.
With term life insurance, there’s less to lose and you’ll win more peace of mind. The coverage and premiums remain the same for term duration. And in the event of your passing, your family—instead of your lender—receives the benefit, which means they’re empowered to use the money where and how they need it most.
That's why term life insurance is ultimately worth it.
Discover how affordable (and simple) life insurance can be with PolicyMe.
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