You’re buying a home—a place for your family to enjoy for years to come- an asset that will continue to grow in value as those years go by. It’s an enormous commitment, but the right financial products will ensure that your family can maintain that commitment if something happens to you.
Keep reading to learn about the different types of insurance relevant to mortgages and how life insurance may be the best option for ensuring your family can stay safe and secure in your shared home.
Mortgage Loan Insurance vs. Mortgage Protection Insurance
You’ll probably hear these terms when you’re setting up your mortgage. It’s easy to confuse them, so be sure you’re researching the right product when looking for information. Here’s how they differ:
- Mortgage loan insurance is generally required if your down payment is less than 20% of the purchase price of your home. This type of insurance protects the lender rather than the homeowner, but the homeowner ultimately pays the premiums and fees because they get added to the mortgage payments. Mortgage loan insurance is usually expensive, and the premiums don’t go down as you pay down the principal on your mortgage. Although it has downsides, this insurance product enables potential home buyers to buy a home sooner than if they had to save for a larger down payment.
- Mortgage protection insurance protects the borrower and is designed to pay off the mortgage if they pass away. Some policies also cover borrowers if they become ill or disabled. Because it only covers the outstanding amount of your mortgage, the value of your policy decreases with time. Many major lenders sell mortgage protection insurance, so you can buy it from them when you negotiate your mortgage or get it from a third party.
Mortgage Protection Insurance vs. Life Insurance
You already know that mortgage protection insurance pays off your mortgage if you pass away. It’s a good way to keep your family in the home you’ve shared after you’re gone. But you may be surprised to learn that life insurance can do the same thing, with additional benefits.
- Life insurance protects your family as its generally designed to provide your beneficiary with a lump sum payment if you pass away. Here’s how it differs from mortgage protection insurance:
- You choose the amount of the insurance, so it can be higher than the amount you still owe on your house. In contrast, mortgage protection insurance is always for the remaining balance of the outstanding mortgage, so it can’t be for more than what you still owe on the house, and the payout decreases over time.
- You can designate anyone as your beneficiary, whereas the beneficiary of mortgage protection insurance is always the mortgage lender.
- The payout doesn’t have to be used for your mortgage: the beneficiary may want to continue with the regular mortgage payments and use the payout for something else, like utility bills, childcare or tuition. With mortgage loan insurance, the payout must be used to pay off the mortgage.
- Your beneficiary gets the money even if your mortgage is paid off. With mortgage protection insurance, there is nothing left over for your family.
Mortgage protection insurance is often recommended by lenders, especially if they sell this product themselves, but life insurance can have significant benefits over and above what other products offer. If you want flexibility while ensuring your family is comfortable and safe after you pass away, consider life insurance instead.
Canada Protection Plan has a range of options to cover your life insurance needs, and we’re happy to help you explore the option of life insurance instead of mortgage protection insurance. We have no-medical policies up to $750,000 for home buyers of all types: whether you’re in good health, hard to insure due to health, lifestyle, or occupational reasons, or you just don’t like doctors or needles. Our application process is quick, so you won’t be waiting and wondering if you will be covered. Worried about making your mortgage payments if you become ill? We also offer no-medical critical illness insurance, which you can use for any purpose, including your mortgage payments.