How Does Mortgage Life Insurance Work
When taking out a mortgage life insurance policy, you:
- Choose the amount of cover you need. This is usually the amount you owe on your mortgage.
- Choose how long you want your cover to last. This should be the same length as your mortgage.
- Well then show you our best deals for the amount of cover you need. Simply choose the one that best suits your needs.
Once youre accepted, you start paying your monthly premiums.
If you die during the policy term, your policy should pay out however much is left to pay on your mortgage. This lump sum goes to the people you name as your beneficiaries, who can use this money as they see fit. Since mortgages are usually the biggest financial burden, this payout could be used to clear that outstanding debt.
What Are The Best Alternatives To Mortgage Life Insurance
Mortgage life insurance is fairly unique in its inflexibility. It does not allow you to adapt to changing life circumstances. More importantly, it does not allow your dependents choices as to how to use the money. You may decide that the most important thing is for your mortgage to be paid off so your family can live in the house. But perhaps, after your death, the priority for your family will be to move to another city. With mortgage life insurance they will not have readily available money to help them navigate this difficult moment.
Equally, mortgage life insurance does not protect you in any way if you are no longer able to make mortgage payments due to sickness or disability. Let’s take a look at some other ways to protect your home and your dependents:
- Traditional life insurance is paid directly to a recipient of your choice if you die. The money can be used for daily expenses, funeral costs, mortgage payments or anything they judge to be the priority.
- Critical Illness insurance covers you if you lose income due to sickness or disability.
- Disability insurance is similar to critical illness insurance. It covers loss of income if you are unable to return to work for a long period or permanently.
Use our online comparison tool to compare the best life insurance offers and products for you:
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Mortgage Life Insurance Costs More
Because mortgage life insurance generally doesnât require a medical exam or health questions, youâre likely to pay more than for your coverage than you would for traditional term life insurance . Plus, as time goes on, the death benefit decreases but your premium typically doesnât â which means your premium dollars donât go as far as time goes on.
Do I Require Mortgage Insurance
Mortgage insurance is not mandatory. Instead, a homeowner can choose mortgage protection life insurance, such as a term life policy. It pulls double duty, protecting your mortgage debt and covering other life insurance needs at the same time. This means the same policy you use to protect your mortgage loan can also be used to cover the cost of living for those you leave behind in the unfortunate event of your death.
Help Protect Your Loved Ones Your Home And Your Savings In Case Something Happens To You
Seventy-five percent of Canadian households say that they would have difficulty paying everyday living expenses like their mortgage if the primary breadwinner were to pass away.1 It doesnt have to be that way. Mortgage life insurance is a simple, convenient and affordable way to protect your familys future, with coverage that pays off the mortgage balance if the mortgage holder passes away.
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So Is Mortgage Life Insurance A Good Idea
A bank mortgage insurance policy works great for the bank but it doesnt take the place of standard term life insurance. Bank-owed mortgage insurance plans may tout convenience, but they lack flexibility, affordability, and breadth of coverage, potentially exposing you loved ones to financial hardship in the event of your death.
Canada Protection Plan offers an extensive range of convenient, affordable, and reliable life insurance protection options, to help you find the best-fit coverage for you and your family.
Choose between permanent insurance, or term insurance depending on the amount of flexibility that you need.
Unlike bank-owned mortgage insurance, you can be assured that your life insurance coverage will not decrease over time, and you are empowered to make decisions as to who will manage your expenses in the event of your death. You may elect for your life insurance to cover your remaining mortgage, as well as other debts and life expenses, pay for your childrens education, or to leave a gift to a favourite cause.
Life insurance coverage can safeguard the financial well-being of your loved ones, well into the future.
Mortgage Insurance Canada Protection Plan Can Help
Are you buying a new home? Congratulations! If you are like most Canadians, you are probably getting a mortgage at a bank. And they are probably showing you how easy it is to get mortgage life insurance. So you sign up, and everything is good. Or is it?
There is no question that the easiest way to buy insurance to pay off the mortgage in case you die is to get mortgage insurance protection at the bank.
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Is Mortgage Life Insurance A Good Idea
While some folks may be attracted to mortgage life insurance because you dont need to take a life insurance medical exam, there are very few advantages to mortgage life insurance over term life insurance.
For many, the biggest deal breaker is the lack of flexibility. With mortgage life insurance, the death payout goes directly to your mortgage lender. With term life insurance, the death benefit goes to your beneficiary who can use the money as they see fit .
How Much Mortgage Life Cover Do You Need
The amount of cover you take out should match the amount you owe on your mortgage. As everyones mortgage is different, the amount you need is specific to you.
The amount your policy pays out over time, so you should check that it goes down at the same rate as your mortgage. Take out too little cover, and your payout might not be enough to clear your mortgage if you die.
Taking out too much cover is also a possibility. Do this and you could be paying more in premiums than you need to be.
Bear in mind that if you extend your mortgage, or increase the amount you borrow, you should update your policy to ensure it covers your new mortgage. Get in touch with your insurer if this is the case.
The best way to get a policy that works for you is to tie your cover amount to the amount you owe on your mortgage. You can check your latest mortgage statement, or speak to your lender to get the most recent balance on your mortgage
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How Much Does Mortgage Life Insurance Cost
Costs vary from provider to provider, so it is important to do thorough research and ensure you are getting the best deal. Rates can vary between 10 cents to $1.70 per $1000 of coverage. Though these rates seem cheap it is important to remember that they technically get more expensive over time. That is because you continue to pay the same rate but the amount of coverage you have decreases as you pay off your mortgage.
For example: if you buy a $200 000 house with a 50% deposit you will have a mortgage of $100 000. If you buy mortgage life insurance, let’s say they offer you a rate of $1 a month. At first, your $1 gives you $100 000 of coverage – a pretty good deal! After 5 years, however, let’s say you have paid off $30 000 of your mortgage. You are still paying $1 a month but now that only gives you $70 000 of coverage.
If your lender provides your mortgage life insurance the cost will simply be added to your monthly mortgage repayment.
Summary: Mortgage Life Insurance Features
When do I buy it?
Usually when you buy the house, or shortly thereafter
Who gets the life insurance payout?
Your mortgage lender
Your premiums will stay level over the course of the policy
Can I have a policy with my spouse?
Yes, mortgage insurance can cover co-borrowers
What happens when I pay off my mortgage?
The mortgage life insurance ends when the mortgage ends
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What Mortgage Life Insurance Covers
Mortgage life insurance, or mortgage protection insurance, refers to a set of life insurance products that are designed to pay your outstanding mortgage balance if you die. This coverage is often offered by your bank or mortgage lender, but you can also purchase it through unaffiliated insurers. Since so many parties offer mortgage life insurance, the structure and benefits can vary significantly.
Mortgage life insurance policies have a specified period of coverage, generally 15 or 30 years, and the death benefit can be structured in one of three ways:
- The death benefit may be fixed for the first few years of coverage, but then decreases at a specified rate over the life of the policy. This is meant to mimic the rate at which the mortgage is paid off.
- Mortgage principal: Some policies tie the death benefit to the outstanding mortgage principal. This will behave similarly to a decreasing death benefit but, if you pay off your mortgage faster or slower than expected, the policy will reflect that.
- Level: The death benefit will remain the same over the life of the policy. This may be ideal if you have an interest-only mortgage, since the principal remains the same.
How Much Does Mortgage Life Insurance Cost In Canada
Paying for a home is expensive enough. Adding the cost of mortgage life insurance on top of your monthly payments may seem stressful. Your bank is pushing this product, but do you really need it?
Mortgage life insurance is also referred to as mortgage protection insurance.In this post, weâll look at how much mortgage life insurance costs in Canada from some of the biggest providers. And weâll dive into term life insurance as an alternative and how much that costs as well.
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Is Mortgage Life Insurance Worth It
Mortgage life insurance, or mortgage protection insurance, pays off a mortgage in the event of the death of the borrower. Both life insurance companies and banks offer it, but mortgage life insurance policies are a little different than traditional life insurance. You don’t choose the beneficiary, instead, the beneficiary is your lender. Should you pass away, they will be paid the remaining balance of your mortgage. This means that you can leave a paid-off home to your loved ones.
Ultimately you may be better off buying another form of life insurance or disability insurance rather than mortgage life insurance.
In certain situations, mortgage life insurance may be the best option. If for example you had a dependent who you wanted to have the house but were unsure would behave sensibly if they received a large cash payout, then it could be a good idea. Another circumstance is if you want to protect your home, but do not qualify for traditional life insurance because of pre-existing medical conditions.
However, even in complicated, specific circumstances, there are other ways of protecting your loved ones. Appointing a trustee over life insurance payouts could be a good option, or writing a policy that means payments are staggered over a period of time instead of arriving all at once.
To speak with an insurance broker to start comparing mortgage life insurance and other options
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Standard Life Insurance Vs Mortgage Life Insurance
Although you may decide mortgage life insurance isn’t for you and your family, most homebuyers need some form of life insurance protection.
“If a surviving family has been used to living on two incomes and they lose one income, a lot of times they will not be able to keep up the mortgage payments,” says Merideth.
As with other life insurance products, mortgage life insurance is priced according to the insurance company’s risk. If you have health problems, you will likely be charged higher premiums or receive a rejection, Whittle says.
Generally, people whose pre-existing health problems make them ineligible for standard life insurance can’t use mortgage life insurance as a substitute.
P.J. Garcia, the owner of Beach Pacific Escrow in Huntington Beach, CA, says a lender doesn’t usually offer mortgage life insurance at the closing table. However, once the loan has closed and the sale has been recorded, offers may come pouring in.
“After closing, you will get inundated with offers like that from both the lender and third parties,” Garcia says. “Everybody monitors the county recorder. It’s the kind of post-closing junk mail you get: File for a homestead, get mortgage life insurance.”
Standard life insurance policies aren’t marketed as mortgage protection products, but they offer the same benefits and often at better values. Consumer advocates say there generally is no practical reason to choose a mortgage policy over standard life protection.
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Benefits Of Aib Mortgage Life Insurance
Our mortgage protection plan is called AIB Mortgage Life Insurance. This plan pays out a cash lump sum if you die during the term of your plan. When taking out Mortgage Protection you can choose to add on a Specified Illness plan which will provide a cash lump sum to help you repay your mortgage and other bills should you be diagnosed with one of the specified Illnesses covered during the term of your plan.
- Additional Information about AIB Mortgage Life Insurance
- You must be aged between 18 and 74
- Term for Life Cover is 5 to 40 years or up to age 80, whichever is earlier
- Term for Specified Illness Cover is 5 to 40 years or up to age 75, whichever is earlier
- If you stop making your regular monthly premium payment, you will no longer be protected and we will not return the monthly premiums to you
- The amount of your monthly premium is guaranteed to stay the same for the entire period that you are insured for
- You cannot change the amount or level of cover you have though it will decrease as the amount that remains on your outstanding mortgage balance decreases
- The minimum monthly premium is 13
- Only available if you are living in the Republic of Ireland
- For full information describing the benefits and restrictions and exclusions, please read the AIB Mortgage Life Insurance booklet and terms and conditions booklet
Term Life Insurance Vs Mortgage Life Insurance: Which Is Best For You
Term and mortgage life insurance policies have several similarities, but term policies offer much greater flexibility and are significantly cheaper â especially if you’re relatively healthy and a nonsmoker.
Here are some of the key differences between term life insurance and mortgage life insurance:
We recommend term life insurance over mortgage life insurance if you’re in good health because you’ll get cheaper quotes, and the death benefit goes to the beneficiary you choose.
If there are more pressing expenses at the time of your death or your family decides not to keep the house, they can use the full term life insurance payout however they choose.
Mortgage life insurance quotes are more expensive for healthy homeowners because most policies don’t require you to get a medical exam prior to purchase. Therefore, mortgage life insurance companies err on the side of caution by assuming you’re higher risk and raise their rates accordingly.
However, mortgage life insurance is a great alternative if you have pre-existing medical conditions that prevent you from getting traditional term insurance.
Life insurance policies with limited underwriting, such as simplified issue or guaranteed acceptance policies, regularly restrict death benefits to $100,000 to $250,000. While this payout could replace your income or pay for college tuition, it’s probably not enough to also cover your mortgage.
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Mortgage Life Insurance Coverage Depreciates Over Time
When you get mortgage life insurance, your payments stay the same for the term of your mortgage. But as you pay the mortgage off, the amount your policy pays out is reduced. If you make additional payments toward your mortgage, you lose that amount of coverage. Other life insurance products offer coverage guaranteed to stay the same or even go up over time.
Single Or Joint Policy
Usually when people have a joint mortgage, they take out a joint life insurance policy, but you can get a single policy just for yourself.
A joint policy can be used to pay off the mortgage when one person dies, but it will only pay out once. While this can seem the cheaper option, bear in mind that having two single policies means that two lump sums could be paid out.
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What Is Mortgage Protection Insurance Today
Its nearly impossible to find mortgage protection insurance today, at least as a standalone policy. Some life insurance carriers may offer mortgage protection as an optional rider on life insurance policies, but these are very rare.
For the most part, protecting your mortgage is just a primary reason to buy a solid life insurance policy. In fact, carriers will often ask your mortgage balance when helping you calculate how much term or permanent life insurance coverage to buy.
Term life insurance is often cheaper for many homeowners, as well as being significantly more versatile. Rather than paying level premiums for a decreasing benefitas was offered by mortgage protection insurance policiesterm life insurance offers level premiums for a level benefit. Your family will receive the same payout regardless of how much is owed on your home if you die.
Additionally, term life insurance gives your family options. If they want to use the death benefit to pay off the home, they can if they would rather put that money to use somewhere else, though, thats also an option. And if you want to refinance your home mortgage over the years , you can.