Mortgage Life Insurance vs. Term Life Insurance Differences In Canada

Estimated reading time: 6 minutes

Knowing the differences between term life insurance and mortgage insurance is critical for a first-time home buyer, new Canadian, or current homeowner.

mortgage life insurance
Term life insurance vs. Mortgage insurance in Canada

Before Buying Our First Canadian Home

Before we purchased our first home in Ontario, we promised ourselves that we’d be prepared financially for the unknown.

We knew our journey would have obstacles and thought our path could significantly change if we didn’t think ahead.

After nearly three years of renting a room and two years of marriage, we finally purchased our first home together.

It was my first home in Canada, so I researched as much as possible about the buying process.

I wasn’t aware of the difference between term life insurance, mortgage loan insurance, and mortgage insurance.

Before signing our mortgage papers, I’m glad we researched alternative options like term life insurance.

However, if you put down less than 20% of your mortgage, you must purchase mortgage loan insurance.

You may also need to purchase mortgage loan insurance if you have poor credit or are self-employed.

How We Prepared For Our Future

Besides education about term life insurance and mortgage insurance, we took other steps to pave our way into the future.

You can’t fight fire without water; when there’s a fire, and there always is, it’s essential to be prepared.

✔️ Purchased a family home on one income of $265,000 @ 4.3% interest and a down payment of $85,000 or 32%.

✔️ We invested in a 25-year term life insurance policy for $450,000 for each of us.

✔️ Quit smoking to reduce our life insurance policy payments and still smoke-free.

✔️We paid off our mortgage in five years with a remainder of 20 years of coverage under our term-life insurance policy.

Term Life Insurance vs. Mortgage Insurance

Let’s discuss the difference between the term Life Insurance and Mortgage Insurance.

Term life insurance will pay the total amount of the policy, whereas mortgage insurance only pays the remainder of the mortgage owing.

An example is if someone owned a home, held Term Life Insurance, and died.

The Term Life Insurance is optional and will pay the beneficiary named on the insurance document the amount stated.

The insurance policy might state that it is for $800,000, paid once the insurance company is satisfied with the death.

Mortgage Insurance must be purchased when someone does not put a 20% downpayment on a mortgage.

Mortgage InsuranceMortgage Loan Insurance, and Mortgage Default insurance protect the lender, so they get their money back.

Even if you put 20% down on your mortgage, the lender or broker may ask if you still want it.

Most often, individuals with a low credit score or working for themselves will find the bank checks their credit score.

Related: Get your Free Credit Score and a $1 Credit Report

Cost Of Term Life Insurance

Term life insurance has always been affordable for Mrs. CBB and me, especially after we quit smoking.

Below are the results from using the PolicyMe quote widget, which I tested to see how much my life insurance policy would cost.

At my age, 47, and non-smoker, the best starting cost of term life insurance would be $89.03/month.

*Quotes are based on our customer’s average coverage amount and policy length of $500,000 over 20 years.

PolicyMe Bonus:

  • PolicyMe offers free life insurance for our policyholders’ kids (and future kids).
  • Also, if you apply with your partner, your final rate will include the 10% Couples Discount for the first year once your application is approved.

The PolicyMe website has a more in-depth family life insurance calculator, which is also pretty cool.

Here are the results of my filling in our personal information based on our income, non-smokers, monthly budget, no mortgage, and zero debt.

  • $100,000 in coverage over ten years, $15.62/mth
  • $300,000 in coverage over ten years, $33.91/mth (even more coverage)

We added up the total amount of money that your family will spend if they don’t change their current lifestyle and subtracted out all the money that will be available to your family in the future.

Your recommended coverage is needed to make up the difference.

Debts?$0
Children’s expenses until age 25?$200,000
Children’s education?$50,000
Partner’s expenses for life?$1,300,000
Savings?($725,000)
Partner’s future income?($725,000)
Existing coverage already in place?($0)
Additional Insurance coverage needed   $100,000
PolicyMe term life insurance quote

* When we project forward expenses and income, we add on inflation to make sure your family can afford to pay their bills as prices increase over time

** The numbers you see are all “present values”, a fancy statistical technique that is used to describe how much a future sum of money is worth today

Mortgage Insurance If You Die

Mortgage insurance, or mortgage protection insurance, is optional and does not factor into whether one qualifies for a mortgage.

This type of insurance is used for illness, job loss, injury/disability, critical illness, or death.

If the homeowner were to pass away, the mortgage insurance would pay off the remainder of the mortgage loan.

Money from a mortgage loan is paid to the bank where the homeowner took the mortgage and then relieved the mortgage.

So, if you put the minimum 5% down $25,000 on a $500,000 mortgage, you would need mortgage insurance which is factored into the loan balance.

To avoid paying for mortgage insurance, you would need to put $125,000 down on the $500,000, which is 20%.

I did some sleuthing at Scotia Bank to understand what protection they were offering to their mortgage customers.

Canadian mortgage insurance is transferrable or portable, so you can take the coverage to your new home if you move.

Related: How to port a mortgage in Canada

PolicyMe Term Life Insurance

A Canadian company such as PolicyMe can help you with an affordable term life insurance policy and save you up to 20%.

Money can buy peace of mind if you’re prepared to take steps toward securing your tomorrow.

Check out PolicyMe and how the entire process can be done online in the comfort of your home.

Discussion: Before getting one, did you know the difference between mortgage protection insurance and term life insurance?

Please share your comments below.

Thanks for stopping by to read.

Mr. CBB

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2 Comments

  1. Something to keep in mind it the amount of questions asked when applying for the insurance. Many people gravitate towards less questions and medical tests. I’ve had experience on the receiving end of life insurance and I found that the less questions when getting the policy equals less likely the policy will payout. There’s so much fine print that can disqualify the payout.

    1. Hey Red,
      That’s a good point regarding any policy, whether home, life, travel, vehicle, etc. That fine print can bite anyone in the butt. We had medical tests for our life insurance in 2009, but we no longer need to do them since we swapped our new policy. Always ask lots of questions, read the fine print as dull as it is, because some people pay for stuff that they may not get paid out for. Thanks for sharing your experience Red.
      MR. CBB

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