In the unfortunate event of your death, with your mortgage loan still outstanding, this insurance will pay off the remainder of your mortgage debt. It should not be confused with mortgage default insurance or mortgage loan insurance (more on that below).
There are several problems with lender-provided mortgage insurance: coverage value reduces with time, premiums get more expensive with age, premiums increase when you refinance or port your loan, you have no control over the proceeds, and the coverage is not even guaranteed!
Instead, Canadians are better served by mortgage protection through term life insurance.
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Mortgage protection life insurance provides a consistent payout that is not tied to your mortgage debt. Instead, it’s a term life insurance policy: the term simply matches your mortgage’s amortization period.
The payment is guaranteed as the policy is underwritten when purchased (meaning the insurance company takes your personal factors into account when determining the price). Because of this rigorous underwriting, the premiums are typically lower. Your beneficiaries have complete control over how they wish to use the proceeds of mortgage life insurance – even if you’ve paid off your home.
Many Canadians choose mortgage life insurance as an alternative to mortgage insurance both to save money and for its added flexibility.
Mortgage insurance is not mandatory. Instead, a homeowner can choose mortgage protection life insurance, such as a term life policy. It pulls double duty, protecting your mortgage debt and covering other life insurance needs at the same time. This means the same policy you use to protect your mortgage loan can also be used to cover the cost of living for those you leave behind in the unfortunate event of your death.
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