Mortgage Life insurance is life insurance purchased to ensure that your mortgage is paid in full if you or your partner dies. The vast majority of homeowners purchase it through their lending institution (Bank or Credit Union) or mortgage broker. This is referred to as creditor or lending institution mortgage life insurance and it is frequently not a matter of choice but a lack of alternatives at the time you obtained your mortgage. It is presented simply as part of the mortgage process – you need to get it and just sign here.Do you think that something that is sold to about 80% of the people who sign up for a mortgage is priced competitively? It requires an extra effort to say no to this kind of mortgage life insurance when you apply for your mortgage and opt for a personal life insurance policy to cover your mortgage. The following table compares mortgage life insurance purchased through a lending institution and life insurance purchased individually from an insurance broker to cover your mortgage.
Comparison of Mortgage Life Insurance Sources
| Lending Institution Mortgage Life Insurance | Individual Mortgage Life Insurance | |
| At renewal, you generally need to re-qualify for your mortgage life insurance option. Should there have been a negative change in your health, you may longer be able to obtain coverage. | You are underwritten at application time, and once approved, this coverage cannot be revoked, provided the premiums are paid. | |
| It is common to consider changing lending institutions at renewal; unfortunately, your mortgage life insurance coverage is not transferable to the next institution. Health issues could negate your ability to obtain coverage at the new institution. | Once you have a individual policy, your coverage is not tied to your mortgage. | |
| Typically, mortgage life insurance names the lending institution as the beneficiary of the insurance, rather than your significant other. On your demise, the mortgage is paid off, but without additional income loss protection, your significant other may have to sell the home to survive. | On death, your significant other has the choice of paying off the mortgage, or continuing to make the monthly payments based on the situation. Thekey benefits here are control and choice. | |
| The death benefit is usually on the declining balance of the mortgage. | The death benefit is either the original coverage amount, or may increase, dependent on the type of policy chosen. Increased flexibility. | |
| Typically, lending institution life insurance does not offer a discount for excellent health. | For insured’s in excellent health, discounts of up to 35% are possible. In additional individual policies are generally less expensive than lender insurance. | |
| Lender insurance generally does not allow for coverage amounts in excess of the mortgage amount. | An individual policy allows you to combine your mortgage and family requirements in one policy, allowing you to take advantage of lower costs per $,000 for larger death benefits. | |
| Premiums are not guaranteed | Premiums can be guaranteed for a specific term, or a lifetime. | |
| Some lenders include disability and critical illness insurance as part of their mortgage insurance packages. | Typically, life, disability and critical illness insurance are separate policies. Individual disability and critical illness policies typically offer more options, and flexibility, compared to the basic coverage of lenders. One company offers an all three in one integrated plan. Ask us about it. | |
| Typically expires age age 70 | Depending on the company chosen, expiry of term insurance is typically at age 80 or 85, while a couple of companies provide term coverage to age 100. Also, permanent lifetime coverage is available, for a lifetime guaranteed premium | |
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