You have no trouble turning down the insurance that Expedia tries to sell you when you book flights. And you’ve never even considered buying coverage when you pay a pretty penny for sports tickets. But when your mortgage specialist at TD bank pitches mortgage life insurance to you, you wonder whether turning it down would be a colossal mistake.
After all, unless you’re jet-setting around the world for 6 months in business class or buying gold medal hockey game tickets at the Olympics, your flights or sports tickets probably cost a few hundred dollars each. But that mortgage? You’re talking about a 6-figure or even 7-figure sum. That’s a lot of money to be on the hook for, especially if your financial situation changes unexpectedly.
So what should you do? Should you buy mortgage life insurance to reduce the financial risk of your TD mortgage? Or should you look into other ways to protect your family?
In this article, we tell you what you need to know about mortgage life insurance and provide an easy-to-follow TD mortgage life insurance review.
Let’s get started!
What is mortgage insurance?
There are two types of insurance that are specially designed to reduce the financial risk of a mortgage: mortgage life insurance and high-ratio mortgage insurance.
Mortgage life insurance
Also known as mortgage protection insurance, mortgage life insurance protects your family against mortgage debt. It works like this: You buy a policy from your bank or mortgage lender and pay monthly premiums. If you die while holding the policy, your insurer will pay off the rest of your mortgage for you.
If you have mortgage life insurance, your family won’t have to worry about how they’ll cover the remaining mortgage payments without the help of your income. They also won’t have to sell the home (unless they hate it and were just waiting for an excuse to move).
High-ratio mortgage insurance
Often sold by the Canada Mortgage and Housing Corporation (CMHC), high-ratio mortgage insurance is a type of insurance that you’ll have to pay for if you put down less than 20% on your home. Whereas mortgage life insurance is designed to protect your family against mortgage debt, high-ratio mortgage insurance protects your mortgage lender. It reassures them that they won’t lose all of their money if you stop making your monthly mortgage payments. Your bank may be keen on selling you a mortgage. But they aren’t going to risk their bottom line to do it.
Can you get a mortgage without life insurance?
You bet! Your bank might try to convince you that buying mortgage life insurance is one of the best investments you can make. But the truth is that you don’t need to purchase it to get a mortgage.
The only type of insurance that’s mandatory is high-ratio mortgage insurance. Fortunately, though, you can avoid paying for it if you put at least 20% down on your home.
Our review of TD Mortgage Life Insurance
What it covers
Let’s say that you’re securing a mortgage from TD bank, and you’re thinking of buying mortgage life insurance too. What would you get?
If you die, experience an accident, or develop a terminal illness, here’s what TD’s mortgage life insurance would pay for:
- your remaining mortgage principal amount up to $500,000 (excluding outstanding arrears)
- up to 5 years of interest
- any debit balance in your tax account
That first bullet point is one that you definitely don’t want to gloss over. Because if you have more than $500,000 left to pay off, your family will be on the hook for the difference. This might not be a huge deal if you have just $550,000 left to pay off in total. But it could leave your family in a sticky financial situation if you still owe $800,000 or $1,000,000 on your mortgage. After all, depending on your family’s finances, paying off $300,000 or $500,000 might still be more than your family can handle.
So that’s a con of TD’s mortgage life insurance. But what are some of the pros? Your insurance coverage can start as soon as your mortgage is approved, so you can be protected even before the sale on your new home closes. And if you develop an illness that becomes terminal within a year, you, your co-borrowers, and your guarantor may be eligible for an early payout.
What it costs
The cost of TD mortgage life insurance depends on two factors: your age and the initial value of your mortgage. If you apply with a co-borrower, such as your partner, TD will give you a 25% discount on the sum of the premiums calculated for each of you.
Here’s what you can expect to pay for TD mortgage life insurance based on your age and mortgage amount:
|Age||Mortgage Amount||TD mortgage life insurance rate per month|
Keep in mind that once you buy coverage, your premiums won’t change as you age or as you pay off your mortgage. You’ll always pay the same amount in premiums each month (more on this in a second!).
TD mortgage life insurance vs. term life insurance
As we’ve already hinted at, there are some cons to buying mortgage life insurance, including TD mortgage life insurance. Here are some of the most important ones you should be aware of:
Your payout amount decreases over time
When we talked about the cost of TD mortgage insurance, we mentioned that your premiums don’t change as you pay off your mortgage. So for example, if your initial mortgage amount is $500,000, you’ll pay premiums based on $500,000 of coverage. And you’ll continue to pay this amount in premiums even when you have only $250,000 or $100,000 left to pay off.
In other words, you’ll get less and less for what you pay for over time.
It’s more expensive
Mortgage life insurance is a type of simplified issue life insurance. So when you buy mortgage life insurance, you don’t have to complete a thorough underwriting process that’ll scrutinize your health history and lifestyle.
This means that you won’t have to get poked and prodded by a nurse before you can get approved for coverage. But because your bank won’t know how risky you are to insure, they’ll usually compensate by charging you more for insurance.
Term life insurance is the better option
If you want to protect your family against mortgage debt, buying term life insurance is usually the better option. Term life insurance is typically cheaper than mortgage life insurance because you buy it for a fixed period of time and undergo medical underwriting. Here’s how rates for mortgage life insurance and term life insurance stack up:
|$500,000 of TD mortgage life insurance||$500,000 of term life insurance|
|Male, aged 30||$70 / month||$30 / month|
|Female, aged 30||$70 / month||$22 / month|
|Male, aged 40||$150 / month||$49 / month|
|Female, aged 40||$150 / month||$35 / month|
|Male, aged 50||$270 / month||$130 / month|
|Female, aged 50||$270 / month||$86 / month|
Term life insurance does more than help you save some cash, though. When you buy term life insurance, you can get coverage for the total value of your mortgage — even if it’s more than $500,000. And no matter how much of your mortgage amount you’ve paid off, your payout amount won’t decrease over time.
So if you want more comprehensive coverage for your family at a better rate, term life insurance is usually your best bet.