What Is Mortgage Life Insurance in Canada?
Mortgage life insurance in Canada is an optional policy that pays the balance left on your mortgage to your lender if you die. No lender can require it, and you do not need it to be approved for a mortgage.
Most buyers first hear about it at the bank, usually while the mortgage paperwork is being signed. The Financial Consumer Agency of Canada classes it as an optional mortgage insurance product and says a lender cannot insist that you buy it. Express consent has to come first. Federal rules also bar coercive tied selling, which means a bank cannot make one product a condition of getting another.
How mortgage life insurance works
The premium is based on the size of your mortgage and your age, and it is usually added to your regular mortgage payment. Coverage equals whatever you still owe. As the loan is paid down over the amortization period, the possible payout shrinks with it, yet the premium generally stays the same.
The money goes to the lender. Your family does not receive a cheque and cannot decide how the benefit is used, although the home is left without that mortgage debt.
How it differs from other insurance
The name causes confusion. Mortgage default insurance is a separate product that is mandatory when a down payment is under 20 per cent of the purchase price. Lenders in Ontario also expect home insurance on the property before they release funds. Mortgage life insurance is neither of those.
Term or permanent life insurance is the closest comparison. With those policies you pick the coverage amount, the death benefit stays level, and you name a beneficiary who can spend the money on anything, the mortgage included. Medical history is one of the factors in their pricing. The federal agency notes that term or permanent life insurance may provide better value.
Lenders often sell related coverage for disability, critical illness or job loss, which may make the mortgage payments if you cannot work. Pre-existing conditions are usually not covered, and the agency suggests asking to see the insurance certificate before applying.
Anyone offered the product by a federally regulated bank is entitled to a disclosure of the charges before consenting and keeps the option to cancel. The coverage can also be bought from an insurer other than the lender.
Related reading: What Is Mortgage Default Insurance in Ontario?, Do You Need Home Insurance to Get a Mortgage in Ontario? and What Is Title Insurance and Do You Need It in Ontario?.
