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mortgage protection insurance vs term life insurance

Mortgage Protection Insurance Vs Term Life Insurance Canada

Mortgage Protection Insurance and Term Life Insurance are two types of life insurance policies you can choose from when you’re buying a home in Canada. Both offer protection in the event of death or other serious life events, but there are some key differences between the two. In this article, we’re going to compare the differences between the two and which one is more beneficial to you and your loved ones.

What Is Mortgage Protection Insurance

Basically, a mortgage protection insurance is an insurance policy designed to protect your loved ones against your mortgage obligation in case you, as the mortgagor (the debtor) becomes can no longer do what you do because of a serious life event like premature death, illness or an injury. One thing to note when you’re considering getting mortgage protection insurance with a bank or your mortgage lender is that the main beneficiary of the policy is the lender and not your loved ones. If something were to happen to you, the mortgage balance is paid off but there’ll be no excess cash or death benefit paid to your survivors.

Most people who borrow money to buy a home in Canada get their mortgage protection insurance from their lender, without giving it much of a second thought – this can sometimes get tricky at claim time!

Watch CBC Marketplace: Mortgage Insurance - In Denial [Short]

What Is Term Life Insurance

Term life insurance, on the other hand, is a type of individual life insurance that provides coverage for a fixed period of time, between 10 and 40 years. If you die during the term of the policy, the policy pays out a death benefit to your beneficiaries. If you live beyond the term of the policy, and you don’t renew or convert the policy into permanent life insurance, your policy expires, and there is no payout.

Term life insurance pays a death benefit to your beneficiaries if you die while the policy is in force, this type of policy isn’t necessarily attached to your mortgage.

Depending on your residency status, some Canadian banks and credit unions would require a collateral assignment for the amount of your mortgage obligation but this can be done in a way that limits the proceeds only to the actual amount of the loan at the time of the mortgagee’s death.

Mortgage Protection Insurance Explained

house buying - open house

Term life insurance and bank-offered mortgage protection insurance are both forms of life insurance, but they cover very different expenses. Term life insurance is often a better choice because it’s individually owned and is fully underwritten.

As mentioned earlier, the mortgage protection insurance that’s being offered by your lender only pays out whatever the balance of the mortgage upon the life insured’s death, claiming the living benefits (disability and critical illness insurance) also proved to be challenging at least 25% of those who are insured by bank offered mortgage protection insurance. The reason?

It’s called “Post-Claim underwriting”! Watch the video below for a better understanding of how hard it is to qualify for a claim with a bank-offered mortgage protection insurance.

CBC Marketplace: In Denial [Full]​

Book a Free Consultation

Book a free consultation with a financial advisor, licensed to deal with term life insurance for your mortgage protection needs. We are licensed in the provinces of Manitoba and Ontario and can help you implement more solid financial protection for you and your family.

Book Your Appointment here

What Is Post-Claim Underwriting In Mortgage Insurance

Post-claim underwriting is the process of verifying the validity of your coverage at the time a claim is made. This usually involves going back to your medical history at the time of your insurance application, which is not checked when you signed the dotted lines. As a result, 25% of those who have bank mortgage protection insurance get declined at the time of claim.

Post-claim underwriting is common practice with bank-offered mortgage protection insurance yet a lot of would-be homeowners aren’t aware that they aren’t fully covered and will only learn about this fact when the need to make a claim arises.

An individually-owned term life insurance, on the other hand, is not subject to post-claim underwriting. This means that if you die while the policy is in force, your beneficiaries will receive the death benefit without having to prove insurability as this has already been verified at the time of application through proper underwriting procedures. With term life insurance, you’re either approved or declined at the time of application. This means that you’re 100% sure your beneficiaries are well protected should they ever need to claim the benefit.

Mortgage Insurance vs. Term Life Insurance

In most cases, Term life insurance is much cheaper than bank mortgage protection insurance, but its primary advantage is in knowing that your household is fully-protected – meaning, they will receive the payout, should they ever need it!

Secondly, it’s flexibility – you need not reapply or renew your coverage every 5-years, especially if you’re switching lenders every 5-year or so to save on mortgage interest rates or to pay off your home faster.

With term life insurance, the coverage you receive will depend on the length of your mortgage obligation. So, if you have a 25-year mortgage, which we usually do here in Canada, you’re going to contribute a level amount of premium that will not increase over the 25-year period.

If you’re in very good health, you can even get preferred rates with term life, which means a lower premium than the standard quote monthly contribution.

As an individually-owned, stand-alone policy, term life insurance can be enhanced with disability and critical illness insurance coverages to make sure all risks are covered. In case, you can’t work due to an illness or an injury, you have money to still make your mortgage payments at least until you get back on your feet.

Mortgage Insurance or Life Insurance in Canada

Mortgage protection or term life insurance

Term life insurance and mortgage protection insurance both cover your mortgage obligation. They both require you to pay a monthly premium based on your age and mortgage amount. Mortgage protection insurance premiums are added to your mortgage payments each month (or bi-weekly). Term life insurance is a more affordable, flexible, and far better option due to the fact that you know that you’re fully covered once you’re approved!

In Canada, all six large banks and credit unions offer mortgage protection insurance plans. While it’s easy to signed-up, it can be difficult at claim time.

If you want to fully protect your loved ones from your mortgage obligation, you should get a fully-underwritten insurance policy. This can’t be questioned at claim time because your health, lifestyle, and immediate family’s (father, mother, and siblings) history has already been underwritten at the time of your life insurance application. You know your benefit is there when you or loved ones will need to make a claim – and the best part is, the cheque gets issued to your household, and not the bank!

Get A Free Term Life Insurance Quote

If you’re ready to move forward with term life insurance for your mortgage protection needs, please fill out the form below and we’ll send you individualized quotes that are specific to your needs!

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