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mortgage life insurance

Mortgage Life Insurance

by Glenn on November 13, 2007

Looking for mortgage life insurance?  Not so fast – there’s better alternatives.

Rather than buying mortgage life insurance through the banks you should also consider an individual term life insurance policy.  There’s two main differences between mortgage life insurance and an individual term life insurance policy:

  1. Individual life insurance is generally cheaper than mortgage life insurance
  2. Individual life insurance is generally a better product than mortgage life insurance

Let me expand on those points a bit.

Individual life insurance tends to be cheaper than mortgage life insurance.  Why?  Well, I believe it’s possibly because individual term insurance products are priced more competitively because consumers shop prices more frequently.  Companies that want your business price themselves competitively.  How many comparisons do the banks tend to offer when you’re looking at life insurance?  Only 1, whatever product they’re offering.  There may be other reasons as well, but ultimately when you shop it out expect to be pleasantly surprised at how much cheaper an individual term product can be (see the sidebar on the right here if you want to run a life insurance quote).

Secondly, individual life is generally a better life insurance product.  Here’s the reasons why:

  • Mortgage life insurance is decreasing term.  Your premiums stay level but as you pay down your mortgage the amount of insurance you’re actually buying decreases as well (it’s only ever as much as your mortgage is).  Individual term life insurance products from most companies have death benefits that remain level.
  • With mortgage life insurance the bank gets the money should you die.  With individual life insurance you can specify whoever you want as the beneficiary.  They can then if they choose pay down the mortgage and still have whatever insurance proceeds remain.
  • Mortgage life insurance comes up for renewal every time your mortgage does. If you have a 5 year term on your mortgage in five years you’re looking at getting a new life insurance policy.  If you’re uninsurable at that time you likely don’t have a lot of options.  Most term life insurance policies in Canada are guaranteed renewable until somewhere between ages 75 and 85.  While the term life premiums will increase at intervals, as long as you pay the premium the insurance company can’t retroactively increase your rates or decline you based on some future health problem.  You own the policy, you pay the premiums, you’re covered as long as the policy is renewable.
  • Term life insurance from most companies has a ‘convertibility’ option.  This allows you to convert your term policy in the future to a permanent life insurance policy without evidence of insurability.  This is a great fallback/worst case scenario option available on many term policies in Canada.  To my knowledge, mortgage life insurance offered through the banks do not have this feature.
  • Term life insurance is far more portable.  You can change beneficiaries in the future, decrease your face amount if needed, and it’s with you no matter where you bank or where your mortgage is.

If you are shopping for mortgage life insurance, you should consider running a term life insurance quote using the quoting system in the right sidebar of this page.  Compare for yourself the differences in prices.