Mortgage life Insurance versus Individual Life Insurance:

What is mortgage life insurance?
Mortgage life insurance is coverage that you can purchase as a mortgage borrower. It’s designed to pay off or pay down the mortgage if you die. The insurance money payable under the coverage is always applied to the mortgage balance.
A mortgage lender will walk you through the paperwork; it’s simple and easy. There are some medical history questions, but no medical exams, and, if approved, it’s tacked on to your monthly mortgage payments. The premiums are determined by your demographics and the cost of your mortgage. If you pay the insurance premiums for the duration of your term, your mortgage should be covered should you die.

What is Individual term life insurance?
Term life insurance is sold by a life insurance agent and covers you for a set period like 10, 20 years or till the age 70 or till age 100. A life insurance agent will walk you through the term options to find a solution that meets the specific needs. There are medical questions, often medical testing, and over 25 insurance carriers you can buy from depending on your province.
The monthly premiums are based on your demographics and overall health, the payout, and term length. Both options are insurance that pay a death benefit but it is worth reviewing and analyzing the differences:

  1. Ownership
    When you purchase life insurance, you own the policy. If you buy mortgage life insurance the mortgage lender holds the policy.
  2. Beneficiary
    The mortgage lender is the sole beneficiary with mortgage insurance. With individual life insurance you can decide who will be the beneficiary will be or outline a number of beneficiaries in varying percentages. The owner defines the beneficiary with life insurance. That means you can also change the beneficiary in the event of a life change.
  3. Medical testing
    With mortgage insurance there is typically no testing just a few simple questions on a small application. This can be very dangerous as the company reserves the right to review medical records at time of death. Despite answering to the best of your knowledge, you may have forgotten some medical information or testing you have completed. If you failed to mention everything, your claim could be denied. With individual term life insurance there is an extensive application you navigate with your insurance agent. They typically require additional testing and sometimes order reports from your doctors for clarification of questions. All underwriting is done prior to issuing the policy to ensure that claims are made.
  4. Policy renewal
    If you signed up for an individual life insurance policy you only have to continue to pay the monthly premiums and no renewal is required during the term of the policy period (term 10, term 20 or term 30). If
    you renew your mortgage insurance every 5 years you will have to renew your mortgage life insurance. The challenge is we continually get older increasing your mortality risk and therefore rates you will pay and you can be declared uninsurable with some medical conditions. With term life, your premiums remain the same
    for the length of the term. Insurance is typically cheaper the younger you buy it.
  5. Portability
    Life insurance is always portable allowing you to change your mortgage lender and keep the current life insurance policy. Mortgage insurance is tied to a specific lender and is not portable.
  6. Coverage
    The amount of coverage you’d receive declines with mortgage insurance. Therefore the payout coverage declines every year as your mortgage balance declines but your premiums you pay stay the same. With life insurance, the death benefit of the payout remains the same throughout your term.
  7. Use
    Mortgage insurance covers only your mortgage. You can use life insurance to cover all needs including funeral expenses, debts, income replacement, education costs and your mortgage.
  8. Flexibility
    Mortgage insurance stops when the mortgage is paid, or if you choose to move to a lender that offers a better rate. Individual life insurance can extend your policy for a few more years or convert it into a whole life insurance policy prior to the renewal dates.

    Overall
    Mortgage life insurance is convenient because it’s easy to apply for when you’re getting a mortgage although there are a number of downsides compared to an individual life insurance solution.

    Mortgage and life insurance aren’t mandatory. But, when it comes to protecting your most substantial financial investment, and your precious dependents from financial burdens, life insurance is the way to go.

Jeff Comiskey

All-Risks Insurance