Mortgage Insurance Canada

Buying a home is a major investment, and usually this means purchasing mortgage insurance from either a bank or some other financial lending institution.

Most of the time the lending institution (often a bank) requires this mortgage protection before they will approve the application.

What is often not made clear by banks is that term life is a great alternative to the mortgage life insurance offered by the lending institution.

In fact, term life insurance has many advantages compared to bank mortgage insurance.

Comparison of Term Life to Bank Mortgage Insurance

To list just a few advantages of term life:

• The beneficiary is whom you choose (e.g. spouse), instead of the lending institution.
• You own the policy, and not the lending institution.
• Many policies can be converted to permanent life insurance for investment and tax purposes after the term is finished (dependent on the policy).

Here is an example scenario:

Mr. and Mrs. Smith have purchased mortgage insurance protection from their bank when they bought a home. Unfortunately, a few years later Mr. Smith passes away. The bank immediately forces Mrs. Smith to pay off the entire mortgage with the proceeds of the policy, even though Mrs. Smith has other pressing needs for those funds (there are several tuition fees from her children to pay for, and renovations need to be done).

If they had purchased term life insurance then Mrs. Smith would be the beneficiary, and would receive the benefits. It would then be at her discretion whether or not to pay off the entire mortgage, or pay part of it and use the other proceeds elsewhere.

It would be especially advantageous not to pay off the entire mortgage if they had obtained it at a good interest rate.