You did it! You bought a house and it has a dreamy playroom with space for a climbing wall your kids will love. While your Pinterest board is on overdrive, there’s a question you have to ask yourself before picking a paint colour: Is mortgage life insurance mandatory in Canada?

We know it’s a letdown to think about what happens if you can’t pay your mortgage. But to protect your family and your new digs, it’s smart to provide them with a financial safety net. 

There’s a lot of confusing info about mortgage life insurance out there and here we’ll break it down to what you need, what you don’t need, and how to pay less for more coverage.     

Is mortgage life insurance mandatory in Canada?

Mortgage life insurance is not mandatory in Canada, fortunately. You might still want to consider some form of life insurance, though, just in case you can’t make your payments anymore. 

That said, if your deposit is less than 20%, mortgage default insurance or CMHC insurance is mandatory. Very different from mortgage life insurance which helps cover payments for your new home (and its gorgeous oak floors), this protects your lender in the event you can’t pay because lenders need to protect their cash flow too.

Issued by the Canada Mortgage and Housing Corporation (CMHC), the lender pays the premium and then passes on the costs to you.   

Got two minutes? Here’s a quick review of insurance policies that provide coverage for your mortgage. 

What type of life insurance do you need to get a mortgage?

The good news is you don’t need life insurance to get a mortgage. 

When it comes to mortgage insurance policies provided by your lender, these products purely pay debt related to your mortgage and your provider can add premiums on top of your regular mortgage payments. Here’s what you can choose from to help cover your mortgage payments:

  • Mortgage life insurance pays off your balance if you pass away and leaves loved ones with less to worry about during a difficult time.
  • Mortgage disability insurance takes care of your payments in the event you become disabled.
  • Critical illness and job loss insurance pays for your mortgage when you become ill or unemployed.
  • Term life insurance steps in like an all-in-one superhero. Loved ones can use the funds to pay off the mortgage, afford unexpected funeral costs, pay for daycare and even contribute to your kids’ college funds.  

Why you might not need mortgage life insurance

Mortgage life insurance is not a must-have in the eyes of the law plus it has a major downfall: It’s a one-trick pony because it only pays off your mortgage. And that’s why you may want to consider another kind of policy that gives you extra for your premiums. 

Life has so many more costs and luckily there’s a better alternative in term life insurance. It offers flexibility with coverage for your mortgage, credit card debt and your salary.

Take special note that term life is provided by an insurance provider, not your mortgage lender, and this kind of policy stands out because it wins you bigger savings thanks to a lower monthly payment. 

Is mortgage life insurance worth it?

There’s more to life than paying your mortgage. 

And that's why a term life insurance policy is smarter than mortgage life insurance because it’s budget-friendly and it puts the various financial needs of your loved ones first. We’ve already shown how it saves you money, now let’s count the ways term life insurance works even harder for your family:

  • You own a term insurance policy, so you decide who the beneficiary is. With mortgage insurance, the lender is always the beneficiary.
  • It covers more than your mortgage debt from paying off loans to covering unexpected funeral costs and helping your partner maintain the lifestyle you worked so hard to achieve.
  • Term life insurance premiums stay the same for the length of your term which can be as long as 20 or 30 years.  Mortgage insurance premiums, on the other hand, renew with every new mortgage term. Premiums increase as age (because your risk of getting ill or passing away goes up with age).
  • Your policy isn’t tied to your lender. In a nutshell, this means your insurance will pay off your mortgage regardless of who your lender is.
  • Your death benefit never loses its value for the length of your policy’s term. 

When comparing policies, think of it as a battle royale between the constant coverage of term life insurance and decreasing coverage of mortgage life insurance. The charts below compare the two (and you can see which policy is the clear winner here). 

Is mortgage Life Insurance Mandatory in Canada?: Chart detailing term vs mortgage life insurance policy coverage

Does the average Canadian need a mortgage life insurance policy?

The truth is you don’t need mortgage life insurance, but ensuring your loved ones have the cash flow to pay for their home ultimately makes financial common sense. 

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. 

Real-world example: Christine 

Meet Christine, a 30-year-old non-smoker with a $300,000 mortgage. Here is what she’ll pay for mortgage protection insurance: 

  • Approximately $33 at Scotiabank or $39 a month at BMO before tax.
  • The costs are the same for both smokers and non-smokers because mortgage insurance policies lump high risk and lower risk people together, making premiums more expensive overall. 
  • FYI: Mortgage life insurance coverage declines with every mortgage payment. With an interest rate of 2.34% and monthly mortgage payments, Christine will pay off $8,950 in principal in one year. This means her mortgage life insurance payout will decline to $291,050 (and it will continue to decline year over year) yet her premiums will stay the same. 
Image of woman unpacking box in kitchen with child for article titled "Is Mortgage Life Insurance Mandatory in Canada?"

Here is what she’ll pay for term life insurance: 

  • For a 20-year term, it will cost Christine $15/month with a solution like PolicyMe before tax. 
  • With PolicyMe, she’ll never overpay for her premiums and she’ll have more cash flow to spend on tutoring for her 12-year-old.
  • FYI: Christine’s premium and payout will remain the same for the length of her policy’s term. 

What happens to life insurance when the mortgage is paid off?

This is when term life insurance really outshines 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. 

Who might benefit from mortgage life insurance coverage?

Mortgage life insurance 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. 

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: 

Is Mortgage Life Insurance Mandatory in Canada?: Chart detailing term vs mortgage life insurance underwriting

In summary: the bottom line on mortgage life insurance in Canada

There’s more to lose with mortgage life insurance. 

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.

Life insurance that’s affordable, flexible and made to fit your life is just a click away. Discover how PolicyMe can help you stress less and live more. 

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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