Mortgage Insurance 101
When you purchase a property, you may be a little overwhelmed by all the insurance offers related to the purchase of said property. Mortgage Insurance, Condo Insurance, Mortgage Default Insurance, Earthquake Insurance; the list goes on and on. It can be confusing, and it is important to know what insurance covers what.
For instance, Mortgage Default Insurance (there are three mortgage default insurers in Canada – CMHC, Genworth, and Canada Guaranty) is solely for the lender and not to be confused as mortgage default insurance for the consumer. Yet, you, the consumer, are responsible for the cost. If you put less than 20% down on a property purchase, you are responsible to pay for Mortgage Default Insurance which covers the lender if you should default on the payment of your mortgage. As well, conditions of the mortgage may require that House/Condo Insurance needs to be purchased to fund the mortgage as to protect the consumer and ultimately the lender from severe losses. This kind of insurance may or may not be mandatory.
Alternatively, Mortgage Life Insurance is not mandatory and is purchased to cover the mortgage if the consumer becomes seriously ill or even dies unexpectedly during the term of the mortgage. Usually, this is purchased when the owner of the house has a family or dependents that will inherit the property and would not be able to financially carry the property without the primary owner’s income. The only difference between Term Life Insurance and Mortgage Life Insurance is that the Mortgage Life Insurance is meant to pay off the consumer’s mortgage. But, depending on the policy, the money that is issued on the Mortgage Life Insurance can be designated for the mortgage only. Or, it may be available for other, more necessary expenditures. It all depends on the policy.
Mortgage Life Insurance is certainly a recommendation for those that have not yet saved up enough to be able to secure themselves with savings such as RRSPs or Pensions. Whether the consumer purchases it through a referral from their Mortgage Broker or perhaps has it already through their employment, Mortgage Life Insurance is a wise choice for anyone who wants to set their future up securely.
Top 8 Benefits of using Mortgage Life Insurance
- Peace of Mind – having Mortgage Life Insurance creates a sense of security that your loved ones will be well taken care of if you pass on.
- Mortgage Paid Off in the Case of Death – having Mortgage Life Insurance ensures an extra level of coverage, whereby any other policies that are held will be able to assist with other needs.
- Family can Stay in their Home – if there is the unfortunate life event that is the death of the Mortgage Life Insurance policy holder, the mortgage will be paid off which will allow the family to stay in their home and not become displaced, causing more despair than needed.
- It Protects your Family’s Finances – Mortgage Life Insurance pays off the mortgage, which means that your family’s finances stay intact.
- Lost Wages – if you become seriously ill, Mortgage Life Insurance can cover your mortgage payments for a specified time (ex. up to 3 years). Unexpected life events such as a serious car accident can result in missed mortgage payments because of loss of wages as you need to recover from injuries.
- Portability –certain Mortgage Life Insurance policies are portable. Which means that if you buy a new property, you will be able to transfer your Mortgage Life Insurance to a new property. Make sure you ask your Insurance Provider if the insurance they are recommending is portable. Take note that when the bank offers you Mortgage Life Insurance you will not likely be able to transfer your Mortgage Life Insurance to a new lender, thereby limiting your future financing options.
- The Younger you are, the Less Expensive– Which means that this insurance is extremely affordable for a young, and likely, first time home buyer.
- Good Health = Coverage for Unexpected Illness Later on –After illness strikes, it is more difficult to acquire life insurance.
Mortgage Life Insurance is an option that anyone with a mortgage can consider. However, it is important to know what your options are regarding the Mortgage Life Insurance itself. Asking your Mortgage Broker for a referral to a reputable and credible Insurance Representative is paramount in finding an Insurance Broker that knows available products, that specifically fits your needs. Every individual is unique and needs an insurance product that is fashioned for their individual situation. A good Insurance Representative will be a Broker that knows what insurance products are out there as well as knows what you, the consumer, needs. The great thing about taking on Mortgage Life Insurance is that you can cancel anytime if later you find an insurance product that suits you better.
Remember to take inventory of insurance products you are already signed up with. If your employer provides you with a benefits package, make sure you find out exactly how much coverage you have and if that coverage will adequately provide for your financial needs. If it does, then maybe you don’t need any Mortgage Life Insurance. On the other hand, if your current coverage won’t be enough, then maybe a good Mortgage Life Insurance policy is something to consider.
For more information regarding Mortgage Life Insurance contact your mortgage professionals at Dominion Lending Centres and we’ll put you in contact with an Insurance Representative that will provide you with viable Mortgage Life Insurance options.
– by Geoff Lee