Friday, September 28, 2012

Is mortgage or term life insurance the best choice for you?

Whether you're buying a home for the first time, or refinancing an existing mortgage, someone has probably suggested you purchase mortgage life insurance. But don't rush into buying a policy until you've looked at all the possibilities. You could end up saving money and getting added life insurance coverage at the same time by purchasing a term life insurance policy instead.

What is mortgage life insurance?
Mortgage life insurance, also known as mortgage insurance or creditor insurance, is offered by most banks and lending institutions. It is a life insurance policy that pays the balance of your mortgage to the lending institution if a person listed on the mortgage passes away.

Mortgage life insurance vs. term life insurance

Depending on your age and health, the premiums on mortgage life insurance can be much higher than what you would pay for a term life insurance policy. Take a look at these price comparisons for $250,000 coverage:

For a couple aged Monthly bank mortgage insurance premiums* Term 20 monthly life rates**
30  $    53.68  $   36.70
40  $    84.75  $   55.31
50  $    180.80  $   135.89
* Based on the information available in September 2012 from the website of a major Canadian bank (including HST.)
**Based on the best rates available for joint coverage (male and female non-smokers) in September 2012, from a major Canadian Life Insurance company (including HST)

What do all these numbers mean?
Well, these numbers suggest that a couple buying or refinancing a home can get a better life insurance rate if you chose a term life insurance policy over a mortgage life insurance policy from your lender. While getting mortgage insurance through your lender is convenient, a term life insurance policy might be the way to go if you're looking to save money.

Extra coverage with term life insurance
A term life insurance policy gives you added coverage and flexibility over a mortgage life insurance policy:

  • The beneficiary of a mortgage insurance policy is the bank, whereas your family receives any payout from your term life policy directly. This gives them the flexibility of using the money to pay off debts, or, if they can still carry the mortgage payments, they can use it for investing and securing a future income.
  • Mortgage insurance policies only cover you for the amount of your mortgage you owe to the bank. As you pay down your mortgage, your coverage amount decreases with it. This is called a reducing balance. With a term life insurance policy, you have a constant level of coverage for the whole term and are getting better value for your monthly payments.
Shop, compare and save

When purchasing your new home or refinancing your mortgage, take the time to compare the cost of a term life insurance policy to a mortgage insurance policy. Chances are you'll find a term life insurance policy will have lower yearly premiums and offer more coverage and flexibility than a mortgage insurance policy.  Please e-mail us, call us, or visit 

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