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What’s the Plan for Your Mortgage if You Die?

June 23, 2021
5 mins
Hand on casket at funeral

A mortgage is the biggest liability that most will ever have. Despite all the thought that goes into shopping and applying for a mortgage, comparatively little goes into what to do with your mortgage if you die.

The question every mortgagor should ask is, would my family be able to make the payments if I weren’t here?

Or would they be forced to sell the house, or worse yet, default?

A new Ipsos poll suggests more than a quarter of Canadians (26%) are not confident that their families would be able to take over their mortgage/rent payments and other housing costs if they were to die or fall ill.

That percentage rises to nearly a third (32%) for borrowers aged 35 to 54.

“While a majority of Canadians express confidence in their family’s ability to manage financially without them, if they were to pass away without life insurance, there remains a significant portion of Canadians who are not confident in their family’s ability to manage,” the Ipsos report reads.

Today's Lowest 5-Year Fixed RatesUpdated 14:35 ET on May 21, 2024

Rates are based on a home value of $400,000

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Verico - Fair Mortgage Solutions - Anson Martin
4.79%
Term
5 Yr Fixed
Loan to value
80.01% to 95%
Insurance
Insured
Rate held until
Aug 20
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4.79%
Term
5 Yr Fixed
Loan to value
80.01% to 95%
Insurance
Insured
Rate held until
Jun 21
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4.89%
Term
5 Yr Fixed
Loan to value
80.01% to 95%
Insurance
Insured
Rate held until
Aug 20

Planning smarter for the future

Insurance is one of the very best ways to financially protect loved ones in the event the primary mortgage borrower passes away.

But what’s the best insurance to get?

Is basic life insurance sufficient, which pays out a fixed lump sum to one’s beneficiaries, or should you opt for Creditor Life Insurance (CLI), which pays off the outstanding mortgage balance?

On the one hand, CLI is fast and convenient to obtain. It can usually be added to your mortgage after completing a short-form application.

But the insurance benefit typically declines as you pay down your mortgage, and CLI can be more expensive versus life insurance. Of course, the premium depends heavily on your age, health and outstanding mortgage balance.

CLI also applies strictly to your mortgage and (optionally) Home Equity Line of Credit balances. The payee is the lender, meaning your heirs can’t use the funds to pay down other non-mortgage debts.

Life insurance, on the other hand, may be more tedious to apply for, but it pays out a lump sum that can be used for anything. The borrower’s family has the financial freedom to do as they wish with the money. Note: For a more in-depth comparison and for additional details about CLI, check out Credit Life Insurance: Is It Worth It?

The pandemic has put renewed focus on people’s mortality. Tragedy can strike quickly and if a main bread winner is lost, and there’s no insurance to cover debt payments, selling the family home is often the only option. Few parents want grief-stricken family to have to deal with that, but it’s incumbent on them to plan ahead and avoid that outcome.

RATESDOTCA Team

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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