When purchasing a home, one of the most significant financial decisions you’ll make is securing a mortgage. Along with your mortgage, many lenders will offer mortgage life insurance to help protect your family and property in case of unforeseen events. But is it the right choice for you? Here are five essential things to know about mortgage life insurance.
1. Mortgage Loan Insurance vs. Mortgage Life Insurance
It’s important to distinguish between two types of insurance you may encounter when buying a home: mortgage loan insurance and mortgage life insurance.
Mortgage loan insurance protects the lender, not the borrower. If you have less than a 20% down payment on your home, this type of insurance will cover your lender’s losses if you are unable to pay off your loan. In Quebec, organizations like CMHC and Sagen provide mortgage loan insurance.
On the other hand, mortgage life insurance protects your family by covering your mortgage payments in case of your death, disability, or serious illness. This type of insurance ensures your family isn’t burdened with your mortgage if something happens to you.
2. Life Insurance Is About Protection, Not an Obligation
When taking out a mortgage, lenders often present mortgage life insurance as a necessity. However, you are under no obligation to purchase it from them. Whether or not you need this type of insurance depends on your personal situation.
For instance, if you and your partner share the mortgage payments and you fall ill, your partner may still be able to manage the payments while you recover. In that case, it may be more cost-effective to opt for a smaller coverage amount instead of full coverage for the entire mortgage. This can reduce your insurance premium.
3. You Don’t Have to Buy Insurance from Your Lender
A common misconception is that you must purchase mortgage life insurance directly from your lender. In reality, you are free to shop around for insurance with other providers. It’s crucial to compare different insurance policies to find the best option for your needs.
Lenders might try to convince you that buying insurance from them will guarantee a better interest rate or increase your chances of securing a mortgage. This is not true. Your ability to secure a mortgage depends on your credit report and financial standing, not on the insurance provider.
4. You Can Change Your Insurance at Any Time
If you’ve already purchased mortgage life insurance from your lender, don’t worry — you can switch your policy without any penalties. Changing your insurance is straightforward and can be done at any time, even before your mortgage renewal.
By shopping around and comparing insurance options, you could find a more affordable policy that better meets your needs. It’s also worth checking what’s covered by your employer’s insurance, as it may reduce the amount you need to pay for your mortgage life insurance.
5. A Broker Can Help You Find the Right Mortgage Life Insurance
If you didn’t purchase mortgage life insurance when securing your mortgage, it’s not too late. A broker can help you find a policy that covers all your specific needs. Brokers have access to a range of insurance providers and can guide you through the process to find the best deal tailored to your situation.
Mortgage life insurance is an important decision, and consulting with a broker can make the entire process easier and more efficient. Whether you’re buying insurance for the first time or considering a change, a broker can help you navigate your options.
In conclusion, mortgage life insurance can provide valuable protection for your family, but it’s crucial to understand what it covers, compare your options, and consider whether it’s the right fit for you.
