Mortgage life insurance is required by many banks as part of the mortgage process. However while they can request that you have life insurance to cover the debt, they cannot require that you get that insurance with them. You have the flexibility to shop for mortgage insurance to get better products and better rates.
True mortgage life insurance is actually what is known as decreasing term life insurance. Your premiums stay level, but your insurance coverage declines as your mortgage goes down. This is the type of mortgage life insurance you would find through the bank.
Rather than getting mortgage life insurance through the bank, you may find that a 20 year level term insurance policy is a better purchase. Level premiums and level death benefit more options, and probably lower premiums. Here’s a quick rundown of the difference between mortgage life insurance and individual life insurance, using 20 year term as an example:
Mortgage Life Insurance vs. 20 year term
|Mortgage life insurance||20 year term|
|Premiums likely higher||Premiums likely lower. See the online quotes on the top right of this page to get a quote. It pays to compare!|
|Death benefits decrease with your mortgage||Death benefit remains level.|
|If you die, the bank gets paid.||You name your own beneficiaries.|
|Premiums level for the term of your mortgage. Important – the ‘term’ is how long your rates are guaranteed for – not the length of your mortgage. If you take out a 30 year mortgage, but have a term of 5 years (i.e. you lock in rates for 5 years), then your mortgage life insurance rates are only locked in for the 5 years – not the 30 years.||Rates guaranteed level for 20 years.|
|You can be declined for new mortgage life insurance at the end of your term if you become unhealthy. You are effectively reapplying for new life insurance every time you renegotiate a new interest rate.||Insurability is determined at the start of the policy, and cannot be revisted as long as you pay your premiums.|
|No conversion option. At renewal if you’re unhealthy you can be declined with no recourse.||You may convert your term policy to permanent insurance up to age 65 to age 70, with no medical exam, at your discretion.|
And the last consideration is something called ‘post claim underwriting’. In order to see the impact of what that term means, we encourage you to view the video clip on mortgage life insurance here: CBC Marketplace, – In Denial. (click on link, then click on ‘watch the video’).
In summary, for most of us 20 year term life insurance is a better insurance product, at a cheaper price, than bank provided mortgage life insurance. Shop the rates using our mortgage life insurance rates quoter at the top right of this page.