Purchasing a home often involves securing a mortgage, and many homeowners consider getting mortgage life insurance to protect their investment. However, before committing to a policy, it’s important to understand how mortgage life insurance works and whether it’s the right choice for you. Here are five key things to know about mortgage life insurance.
1. Mortgage Loan Insurance vs. Mortgage Life Insurance
While these two types of insurance sound similar, they serve different purposes. Mortgage loan insurance is required when your down payment is less than 20% of the home’s purchase price. This insurance, provided by institutions like CMHC or Sagen, protects your lender in case you default on your mortgage payments.
On the other hand, mortgage life insurance is designed to protect your family. If you pass away, become seriously ill, or disabled, the insurer will pay off your mortgage, ensuring your loved ones don’t inherit this financial burden.
2. Life Insurance is Optional, Not Required
When securing a mortgage, lenders often present mortgage life insurance as a necessity, but this is not true. Taking out life insurance for your mortgage is a personal decision. You are not required to purchase it from your lender.
In some cases, if both you and your partner share the mortgage, your partner might be able to continue making payments if you fall ill. Additionally, your employer’s group insurance might cover a portion of your salary during your recovery. If that’s the case, a smaller insurance coverage could be sufficient, which could reduce your insurance premiums.
3. You Can Shop Around for Better Insurance
It’s a common mistake to accept the insurance offered by your lender without comparing other options. Many people believe that insurance and the mortgage must come from the same provider, but this is not the case. Shopping around for better rates and more suitable coverage is essential.
In fact, choosing insurance based solely on the lender’s offer might not be the best deal for you. Comparing different policies and rates ensures that you find an option that suits your financial situation, and it could help you save money in the long run.
4. Changing Your Insurance is Easy and Free
If you’ve already signed up for mortgage life insurance through your lender, it’s not too late to make a change. You can switch to another insurance provider at any time, without penalties or fees. Taking the time to compare different policies could help you find one that better fits your needs and is more affordable.
Remember that insurance coverage can vary greatly, so consider looking for a policy that covers not just life, but also disability or illness. Check if your employer’s insurance plan can supplement your mortgage life insurance, as this could lower your overall insurance costs.
5. A Broker Can Help You Find the Right Policy
If you’re unsure where to start or didn’t get life insurance when you first took out your mortgage, consider working with a broker. Brokers specialize in helping homeowners find insurance that suits their needs. With their expertise, you can ensure that your mortgage life insurance provides adequate coverage without overpaying.
Mortgage life insurance can be an essential part of protecting your home and family, but it’s important to explore your options, understand your needs, and choose the policy that works best for you. By comparing different insurance policies and using a broker for advice, you can make an informed decision that saves you money and gives you peace of mind.
