Home Mortgage Insurance

If you’re buying your first home, or moving into a different one or negotiating a new mortgage, you will probably be asked if you want to purchase mortgage insurance so that your mortgage will get paid in case you or your spouse dies. Many Canadians do buy this insurance, which is typically offered by the mortgage lender. But is mortgage insurance really such a good idea, or is there an alternative?

Actually, you do have another option: individual life insurance. And when you purchase life insurance to protect your mortgage, you can gain some key advantages over mortgage insurance. Here are a few to consider:

Flexibility — If you purchase mortgage insurance, the lender is the beneficiary. But when you own a life insurance policy, you get to choose the beneficiary, so you can name your spouse — and, quite frankly, he or she may need the money more than the mortgage company. Once your surviving spouse receives the tax-free death benefit, he or she can use the money for any purpose, including paying off the mortgage or replacing lost income. In fact, life insurance can be customized to meet your specific needs.
Portability — If you move, or move your mortgage, your mortgage insurance ends, and if you want new mortgage insurance for your next home, you may need to requalify. This might involve higher rates, or you could be declined or denied coverage. But your life insurance policy is “portable,” which means it goes where you go.

No loss in value of coverage — Over time, you’ll pay down the amount of money you owe on your mortgage, but your premiums will not decrease, so, in effect, your mortgage insurance will become increasingly expensive. However, your life insurance premiums pay for the same amount of insurance for the entire life of the policy.

Ultimately, the key difference between mortgage insurance and life insurance is that mortgage insurance covers a debt, while life insurance protects a person. And since people are more valuable than debts, you can infer that life insurance is more valuable than mortgage insurance. So the next time you’re considering purchasing a home or changing your mortgage, give careful thought to using life insurance to protect your mortgage — and a whole lot more.