Looking to take out a loan for a house?
Did you know you do not need to get mortgage insurance when signing up for a mortgage? It is in fact optional.
Many Canadians assume that having a mortgage insurance means that it would pay off your mortgage in the event that you are unable to make your payments. However, mortgage insurance is there to only protect the lender, not you.
It is a policy the lender designed to protect themselves from the risk they took on you. This is why they try to push this product to you, allowing you to think it will be beneficial in the long term. However, this may be different than what you think.
While banks usually force customers to buy mortgage insurance, there are many experts who advise otherwise.
So what’s the difference.
| Personal life insurance | Feature | Mortgage insurance |
|---|---|---|
| You are the policy owner | Who is the policy owner? | The bank is the policy owner |
| Directly paid to your beneficiary death benefit. | Who gets the money? | Directly paid to the bank |
| This money can be used however your beneficiary sees fit (i.e. living expenses, tuition, etc.) | How can I use this money? | The bank collects the money |
| Tends to be more affordable than mortgage insurance | How does the cost differ? | It is an added cost to your monthly mortgage payment. This can be very expensive for an individual. |
| The face value of the policy remains the same. | What is the difference in coverage? | The face value of the policy declines with every mortgage payment made. In addition, coverage ends when your mortgage is fully paid off. |
| No. It is not linked to your mortgage. Therefore, it can provide continuous protection for yourself and your family’s changing needs. | Is this insurance linked to my mortgage? | Yes. This insurance is linked to your mortgage and will decrease over time. |
There’s a big difference between something you would own personally and what the lender is offering. Obviously, life insurance cannot replace your loved one, but it does eradicate the financial loss linked with the death of a breadwinner. Life insurance is designed to secure your family from financial tragedy. Therefore, protect yourself by choosing the right type of insurance*.
*Every individual’s financial situation is different, therefore it is recommended to speak with an advisor to better help you understand which option is right for you.