What is mortgage insurance?
Just as you insure your home or car, you can also protect your mortgage. Mortgage insurance is optional coverage that can help protect you and your family if an illness, disability or death affects your ability to make mortgage payments. Depending on the coverage you choose, it may help cover part or all of your mortgage debt, or provide benefits that help you continue making payments during a period of illness or disability.
This coverage works the same way whether you have a mortgage or home equity line of credit.
Why should you protect your mortgage or home equity line of credit?
A mortgage can be part of your financial life for decades. Over that time, your circumstances may change. If an illness, disability or death prevents you from working, mortgage insurance ensures your family’s home stays protected – and your savings remain intact.
What types of mortgage insurance are available?
There are three main types of mortgage insurance:
- Life insurance
- Disability insurance
- Critical illness insurance
Life insurance is the foundation of this coverage. You must have it to be eligible for mortgage disability or critical illness insurance. Depending on your situation, you can choose life insurance on its own or combine it with disability or critical illness insurance. The right option depends on factors such as your financial obligations, existing insurance coverage and long-term goals.
How is mortgage insurance different from CMHC mortgage loan insurance?
Mortgage insurance and CMHC mortgage loan insurance serve different purposes. CMHC mortgage loan insurance protects the lender, not you. It’s typically required when you buy a home with a down payment of less than 20%. This insurance reduces the lender’s risk and makes it possible for more Canadians to qualify for a mortgage.
Mortgage insurance protects you and your family. It can provide financial support in the event of an illness, disability or death, which will help you manage your mortgage during this difficult period.
What are the benefits of mortgage insurance?
Mortgage insurance can help protect your financial stability when life doesn’t go as planned. Depending on your coverage, it may help:
- Protect your family’s financial security by reducing or eliminating mortgage debt.
- Preserve your savings by limiting the need to draw on investments or emergency funds.
- Maintain your financial plan if an illness or disability affects your income.
- Help cover unexpected costs related to treatment, recovery or caregiving.
- Keep your coverage if you change jobs, since mortgage insurance is not tied to an employer-sponsored benefits plan.
Good to know
Since mortgage insurance isn’t
tied to an employer-sponsored benefits plan, you keep your coverage
if you change jobs. Mortgage insurance can also complement existing
coverage through an employer-sponsored benefits plan or an
individual insurance policy.
Who is eligible for mortgage insurance?
Generally, you may be eligible if:
- You’re between 18 and 64 years old.
- You live in Canada or the United States.
- You have a mortgage or home equity line of credit, or act as a guarantor (someone who agrees to be responsible for the debt if the borrower cannot repay it).
You may also be asked to complete a health questionnaire or provide medical information, depending on the coverage you apply for.
What affects the cost of mortgage life insurance?
The cost of mortgage life insurance varies from one person to another. Premiums are typically based on factors such as:
- Your age
- The amount of your mortgage and payment frequency
- Your health and lifestyle habits, including whether you smoke
Because coverage and eligibility requirements vary, the best way to estimate the cost is to speak with your financial institution or insurance specialist.
How does life insurance on a mortgage loan work?
If you die while covered by a mortgage life insurance, the insured amount is paid directly to your lender to repay all or part of your mortgage debt, up to the coverage limit.
This can safeguard your family’s financial security by reducing or eliminating a major household expense. Depending on the amount insured and the remaining balance on your mortgage, your loved ones may be able to stay in the home without worrying about future mortgage payments.
How is this different from individual life insurance?
The other type of insurance to consider when looking to cover a mortgage is called term life insurance. Unlike a permanent form of life insurance spread over your entire lifetime, a term life insurance lasts for a discrete period, such as 10, 20 or 30 years. However, you don’t necessarily need to choose. Mortgage life insurance and life insurance can be complementary.
- While mortgage life insurance decreases as you pay down your mortgage, your monthly premium remains the same. With term life insurance, coverage stays level the entire length of the term, regardless of how much mortgage you have left.
- Mortgage life insurance is designed specifically to help repay your mortgage debt to the lender. With individual life insurance, the benefit is paid directly to your beneficiaries. They can use the money however they choose, whether that's paying off a mortgage, replacing lost income, paying off debts, funding a dependent’s education or covering other expenses.
- Unlike with term life insurance, securing mortgage life insurance doesn’t require a medical exam or depend on the state of your health. Enrolment is simple, as is the longer term management. Many people roll their mortgage insurance into their monthly payments, adding it directly to their principal balance.
- If you want to ensure the long-term well-being of your spouse and dependents or if your family’s financial needs have grown, having both life insurance and mortgage insurance ensures all your bases are covered in case of death.
How do disability and critical illness insurance work?
Disability insurance
Disability insurance can help cover mortgage payments if an illness or injury prevents you from working. Rather than providing a lump-sum payment, it offers monthly benefits throughout an eligible period of disability. The coverage can complement disability benefits available through an employer-sponsored plan.
Example
A mortgage holder breaks her leg in a car accident and is unable to work for several months. While her regular expenses continue, mortgage disability insurance could help cover insured mortgage payments during her recovery.
Critical illness insurance
Critical illness insurance provides a lump-sum payment if you are diagnosed with a covered critical illness. The benefit can be used to pay down all or part of your mortgage debt and can ease the financial pressure during treatment and recovery, during which time medical expenses and other costs may increase.
Example
A mortgage holder is diagnosed with cancer and needs to take time away from work for treatment. A critical illness benefit could help reduce his mortgage debt, allowing him to focus on his health and family rather than his monthly payments.
How much coverage can you receive?
Coverage amounts vary depending on the type of insurance.
With disability insurance, benefits are paid monthly, up to $3,000 per month. A waiting period of 60 days generally applies before benefits begin.
With critical illness insurance, the maximum insurable amount is $150,000. The benefit is paid as a lump sum and can be used to repay all or part of your mortgage debt.
Good to know
If a critical illness leads to a
disability, you may be eligible for both critical illness and
disability benefits, depending on your coverage.
What conditions may be covered?
Coverage depends on the type of insurance and the terms of your policy.
For disability insurance, a covered disability is generally a physical or mental health condition that prevents you from working and earning an income. This may include injuries, chronic illnesses and certain mental health conditions.
For critical illness insurance, coverage typically applies to specified serious medical conditions, such as certain types of cancer, heart attack or stroke. Eligibility depends on the diagnosis and the policy’s definition of a covered critical illness.
Other conditions may also be covered. Review your policy carefully and speak with an insurance specialist if you have questions about your coverage.
How mortgage insurance compares to personal and workplace coverage
| Mortgage insurance (life, disability, critical illness) | Personal life insurance | Workplace insurance (life, disability, critical illness) | |
|---|---|---|---|
| Who is protected? | You (the borrower) | Your beneficiaries and estate | You, as an employee, and your eligible dependents |
| Where does the payout go? | Directly to your lender to pay down the mortgage | To beneficiaries – they decide how to use it | To you or your beneficiaries |
| Coverage limit | Tied to your mortgage balance (max. $1 million life, $3,000/month disability, $150,000 critical illness) | You set the amount | Employer-defined (typically one to two times your salary) |
| Cost and payment frequency | Matches the frequency of mortgage payments and can be combined with loan payments | Monthly or annual premium (varies by age and health) | Employer pays all or shares cost with employee |
| When does it end? | When the mortgage is paid off or the term ends | As long as you pay premiums (can continue into retirement) | When you leave the job |
| Can you take it with you? | No, it's tied to the mortgage | Yes | No, coverage ends when your job does (you may be able to convert it) |
How can you apply for mortgage insurance?
You can apply for mortgage life, disability or critical illness insurance when you take out a mortgage, renew it or at any point during its term. The application process typically includes a health questionnaire. Depending on your age, health history and the type of coverage requested, additional medical information or tests may be required.
If you apply through your financial institution, it may already have much of the information needed to administer your coverage. Providing accurate information is important. Incomplete or incorrect information could affect your eligibility or a future claim. A financial advisor or insurance specialist can help you understand your options and choose coverage that aligns with your needs and financial goals.
Learn more about life, disability and critical illness coverage and how each type of protection works. Explore our mortgage insurance options.