News & Resources

Why You Should Think Twice About Mortgage Life Insurance

Dec. 18, 14
3 mins
Mom enjoys a cup of coffee while lovingly looking at her cute baby son

When you signed up for a mortgage with your bank, you were probably offered mortgage life insurance. Banks market mortgage life insurance as a must-have for homeowners. If anything were to ever happen to you, your loved ones would be taken care of. Although mortgage insurance may sound good on paper, here’s why you should think twice before signing up.

What is Mortgage Life Insurance?

Mortgage life insurance is a lot like term life insurance. If you pass away, get sick or have a serious accident, your mortgage will be taken care of. Your lender will pay off your outstanding mortgage balance (up to a maximum of $500,000). That’s not all: you’re also covered for a maximum of five years of accrued interest and any balance left in your property tax account. Mortgage life insurance is easy to sign up for: do nothing and you’re covered (most banks make you sign a waiver to skip coverage). Your premiums are conveniently paid along with your mortgage payments.

You Might Not be Covered

If you think mortgage life insurance is too good to be true, you might be right. You’re covered without anything as much of a medical exam. Many families rely on mortgage life insurance in the event of the sudden passing of the breadwinner in the family. What the banks aren’t telling you is that you might not be covered. That’s right, the bank can deny your claim if they discover you had a health condition that you didn’t mention before signing up. You may be wondering if this is legal. Well, the sad reality is that it is. The banks use something called post-claims underwriting. To save money, the banks skip the medical exam when you sign up. It’s only after you pass away that your bank looks for every excuse under the sun to deny your claim.

Declining Balance

Even though your premiums don’t go up every time you renew your mortgage life insurance, you’re paying the same premiums over the life of your mortgage for less coverage. The faster you pay down your mortgage, the less coverage you’re getting. For example, if you take out a $400,000 mortgage and have a remaining balance of $150,000, your bank will only pay what’s left on your mortgage. Your family will only receive $150,000, not $400,000, if you pass away.

Term Life Insurance

Term life insurance is a far better choice than mortgage life insurance. Not only are the premiums lower in most cases, it offers a lot more flexibility. While mortgage life insurance is only good for paying off your mortgage, your family has the freedom to use term life insurance as they please. Your spouse can pay off the mortgage, cover your funeral costs and help your children through college or university.


The RATESDOTCA editorial team are experienced writers focused on sharing stories and bringing you the latest news in insurance and personal finance. Our goal is to provide Canadians with the information and resources they need to make better insurance and financial decisions.

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