How Does Mortgage Insurance Work in Canada?

The question of how does mortgage insurance work becomes important when it’s time to buy a house. Planning to buy a house is probably one of the biggest investments that you’ll make in your life. 

When purchasing a home, your lender or broker may offer you various mortgage insurance plans, particularly renewing one. Since you will put a lot of money towards your home, it’s worth taking steps to protect your investment. 

Along with this, your mortgage insurance plan will most likely be your biggest annual expense as well. So, how does mortgage life insurance work?

Usually, mortgage life insurance is for new homeowners who are concerned about an unexpected death. Mortgage life insurance is more crucial if your dependents can’t afford regular mortgage payments in the event of your death. 

How Does Mortgage Insurance Work in Canada

What is Mortgage Life Insurance? 

If you are new to this, you may be asking yourself “what is mortgage life insurance?” This insurance covers mortgage payment for your dependants. 

You can purchase it as a mortgage borrower. Generally, it’s designed to pay down or pay off all the mortgage costs if you die. Typically, it’s offered when you fill out your loan papers and sign up for your mortgage.

With this, the payable insurance money under the plan is always applied to the mortgage balance. It can help your family stay at home, even if the primary income used in making mortgage payments is no longer available. 

What’s also useful about mortgage life insurance is it usually carries a 30-day “free trial” period. Even after you pay all premiums, you can get it back if you decide to cancel your coverage.

With a free trial, you can purchase coverage right away and have time to review it. It also allows you to talk with an insurance advisor to determine what type of insurance is best suited for your financial situation. 

How Does Mortgage Life Insurance Work?

If you are just new to mortgage insurance, you must be wondering how does mortgage life insurance work. Generally, it functions differently from life insurance because it utilizes a system of declining payouts. 

Besides, your premium is calculated based upon the down payment and the size of your mortgage. The payout, which is the lump sum paid in the event of your death, binds to the outstanding mortgage amount. 

Therefore, when you pay off your mortgage, it slowly decreases the payout. However, your monthly premium stays the same throughout your insurance term.

Another thing is, a bank mortgage insurance plan works great for the bank. However, it doesn’t replace the standard term life insurance. 

Bank-owed, mortgage insurance policy may offer convenience, but they lack affordability, flexibility, and breadth of coverage. It will potentially expose your loved ones to financial problems in the event of your death.

Benefits of Mortgage Life Insurance

After knowing how mortgage life insurance works, you may also want to know the benefits of it. Below are some of the advantages that come with paying the cost of mortgage life insurance.

Anyone can get it quickly

One of the useful things about mortgage protection insurance is that it’s easy to understand. Anyone can purchase a plan. 

Usually, you no longer have to provide medical exams in the underwriting process. Mainly, it is helpful if you have a pre-existing illness or condition that disqualifies you from other life insurance types. 

Good alternative

If the plan offers affordable premiums, mortgage life insurance may be an excellent alternative to different life insurance plans.

Purposeful

In the event of your death, your purchased mortgage life insurance will pay off the balance of your home loan to the bank.

How Does Mortgage Insurance Work in Canada

Key Takeaways

Just in case you are confused, mortgage life insurance is different from mortgage loan insurance. If you purchase a house with a 20% down payment, the lending institution requires you to get a mortgage loan insurance plan. 

It is done to protect your home investment against the risk of default. On the other hand, mortgage life insurance pays off or shoulders the mortgage expenses if the borrower dies. That’s how mortgage life insurance works.

Life Insurance Direct offers an extensive range of affordable, reliable, and convenient mortgage life insurance options. 

We can help you find the best-fit mortgage coverage for you and your family. If you still have questions about how mortgage life insurance works, contact us today.

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