Mortgage insurance is simply a term life policy that is designed to cover your mortgage upon your death. Imagine with a 30-year mortgage you can purchase a 30-year term mortgage insurance policy that covers the amount owed on your mortgage, ensuring that family left behind will be able to pay off your home and continue to live there.
Mortgage insurance policies offered by banks are designed to have a decreasing death benefit over time as the amount of mortgage is decreasing over time. However, the premium doesn’t change, because it has been averaged out over the life of the policy. Moreover, your family cannot use the insurance as they feel; to pay off the mortgage or use it for other important purposes for now.
They must pay off the mortgage which might not be the best solution at the time. A level term insurance policy is A BETTER ALTERNATIVE. Please watch the investigative report by CBC Marketplace here.
It always makes good sense to cover your debts with insurance. There is a better alternative to mortgage insurance which is less costly. It's called LIFE INSURANCE. See the comparison:
| Mortgage Insurance | Life Insurance |
|---|---|
| Your insurance covers only your mortgage balance. | You can choose from different types of insurance (i.e. term or permanent) with a death benefit to cover more than just your mortgage. |
| Even though your mortgage debt reduces over time, your premiums remain level. | Your coverage amount does not decrease over time unless you choose to change it and so does your premium. |
| The mortgage lender is automatically the beneficiary and upon your death, only the outstanding balance on your mortgage is paid off. | Upon death, the death benefit is paid to your beneficiary that you name and the beneficiary can use the benefit as they see fit, not just to pay off your mortgage. |
| If you take your mortgage to another bank or financial institution, you may lose your existing mortgage insurance and may be required to re-qualify for new mortgage insurance. | If you take your mortgage to another bank or financial institution, you keep your existing insurance, so you don't have to re-qualify. |
| You lose all your coverage when your mortgage is discharged. | As long as premiums are paid without default, your coverage remains in place, even if your mortgage is discharged. |
| You have no flexibility to change your coverage as your needs change. | If initially, you decided that you only need coverage until your mortgage is discharged, but later realize that you also require coverage for other needs, you can convert your insurance to a permanent plan. |
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