Life Insurance
Life Insurance Versus Mortgage Insurance
When you sign a mortgage, the lender often offers a creditor insurance product attached to the loan. It is usually called mortgage insurance or creditor life insurance. It is not the same as buying an individual life insurance policy from a licensed life insurance company. Both can have a place, but the differences matter.
Who owns the policy
With individual life insurance, you are the owner of the policy and you choose the beneficiary, often your spouse, partner, or children.
With mortgage insurance from a lender, the lender is the beneficiary. The proceeds are used to pay down the mortgage, not handed to your family.
How the benefit changes over time
Individual life insurance pays a fixed benefit you choose at the start. If you buy half a million dollars of coverage, that is what gets paid.
Lender mortgage insurance pays the remaining mortgage balance. As you pay down the loan, the benefit shrinks even though your premium often does not.
Portability and flexibility
An individual policy stays in place when you change lenders, refinance, or move to a new home, subject to the policy terms.
Lender coverage is tied to the specific mortgage and often ends or needs to be re applied for when the loan changes.
Underwriting timing
Individual life insurance is underwritten when you apply, so you know what is covered before you pay premiums.
Some lender products use post claim underwriting, meaning your health is fully reviewed only when a claim is filed. That can lead to surprises for families.
When mortgage insurance from a lender might still make sense
- You are uninsurable or have very serious health conditions
- You need quick coverage at the closing table and plan to replace it later
- You want a simple decline and accept option without a medical
Want to compare your options
A licensed life advisor can review your situation and quote multiple Canadian carriers for you.
Frequently asked questions
Can I cancel my lender mortgage insurance after I buy individual coverage
Usually yes. Many homeowners replace lender coverage with an individual policy once it is in force. Confirm cancellation terms with your lender.
Is term or permanent life insurance better for a mortgage
Term coverage is common because it matches the time frame of the mortgage. Permanent coverage is useful for longer term estate planning. A licensed life advisor can help compare options.
Will my premium increase as I get older with an individual policy
It depends on the policy. Many term policies have level premiums for the term length you choose, such as ten or twenty years.
This article is for educational purposes only and is not a substitute for personal advice from a licensed insurance professional. Coverage, eligibility, and pricing vary by carrier and policy. Always refer to your policy wording for exact terms.