For most people, their home is the biggest investment they’ll ever make. So it makes sense to protect that investment with insurance that can cover the mortgage in case you or your partner were to pass away. You have two options: life insurance and mortgage insurance. Both can provide you with financial security, but in different ways. Here’s a breakdown of how they work.

What is life insurance?
Life insurance is a form of protection offered by insurance companies that provides a one-time, tax-free benefit to your beneficiaries (usually your family, but you can choose anyone) in the event of your death. They can use this money however they like, such as paying off a mortgage, covering debts, managing living expenses, or replacing lost income.

What is mortgage insurance?
Mortgage insurance is a form of protection offered by financial institutions that pays off your mortgage in the event of your death. It can only be used to pay off your mortgage. The cost of mortgage insurance is typically added to your monthly mortgage payments for convenience.

Which option is more affordable?
Throughout a 20-year mortgage, the costs of life insurance and mortgage insurance can vary significantly. You can secure the best rates on life insurance by applying when you’re younger and in good health. This makes life insurance a more attractive choice.

7 key differences between life insurance and mortgage insurance
Understanding the differences between life insurance and mortgage insurance is vital for finding the right coverage and providing financial stability for your loved ones.
 

1. Beneficiaries

With life insurance, you can choose who your beneficiaries will be. With mortgage insurance, your mortgage lender is the only beneficiary if you pass away. This means your lender receives the payout, not your loved ones. However, your loved ones do benefit to some extent because the mortgage is paid off.
 

2. Medical questionnaires

Mortgage insurance typically doesn’t require a medical questionnaire, which can be an advantage. However, if you have health issues, there’s a risk that your claim may be denied later, because underwriting takes place after a claim is made. Life insurance, on the other hand, usually requires you to complete a medical questionnaire and undergo a medical exam because underwriting takes place before a claim is made. Thanks to the medical questionnaire and exam, you can feel more confident that your insurance provider will pay your claim.
 

3. Portability

Life insurance is portable, meaning it remains in place regardless of your situation—whether you move, pay off your mortgage, or change mortgage lenders. Mortgage insurance is linked to your home and mortgage and can only be used for that purpose. If you sell your home, pay off your mortgage, or switch lenders, your coverage will end.
 

4. Coverage

The terms of your life insurance are established during application and won't change for the duration of the policy. Mortgage insurance coverage decreases as your mortgage balance gets smaller. This means that the payout from mortgage insurance will be less after several years compared to when you first purchased it, even though you continue to pay the same premiums.
 

5. Flexibility

Life insurance plans are remarkably flexible. Your beneficiaries can use the tax-free benefit to cover funeral expenses, pay for a child's post-secondary education, or help your spouse maintain a comfortable lifestyle after your passing. Mortgage insurance can only be used to pay off your remaining mortgage and can't be used for other expenses.
 

6. Expertise

When you buy life insurance, you typically work with a registered insurance advisor who’s trained and licensed. You can also apply for life insurance online. When you buy mortgage insurance, it’s through a financial institution, and the staff there may not have completed any exams or obtained a license to sell mortgage insurance.
 

7. Longevity

Mortgage insurance ends when your mortgage is fully paid or you switch to a different lender. Whereas life insurance stays with you even if you change jobs or retire, and can often be extended or converted into another policy.

It’s important to understand the pros and cons of life insurance and mortgage insurance to make informed decisions about protecting your loved ones. Each type of insurance serves a specific purpose and provides different benefits based on your needs. When choosing between the two, consider your financial situation, dependents, and long-term goals.

Our licensed insurance brokers can help you determine the best life insurance plan option that fits your lifestyle. Call us at 1-833-494-0085 or get an online quote in less than 5 minutes.