
few extra dollars on your monthly payment. Lenders want you to sign up for this service, but is it mandatory to have mortgage life insurance in Canada? Let’s explore this further.
Is mortgage life insurance mandatory in Canada?
Simply the answer is no, mortgage life insurance is not mandatory in Canada. It exists to protect the bank's loan to you (i.e. your mortgage), so if you die, your mortgage is paid. There are better options available to protect your family from financial ruin if you can't make your mortgage payments. Any major life event, such as buying a new home, is an excellent time to explore life insurance.
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What is mortgage life insurance?
Now that you know it’s not mandatory, you might still want know more about mortgage life insurance before you decide to decline the coverage.
Mortgage life insurance is an optional product sold by mortgage lenders that pays off your mortgage balance in the event of your death. Should the unthinkable happen, this insurance coverage will ensure that your estate doesn't owe any money on your home. Mortgage payments will stop, and your heirs won't have to worry about making payments on a mortgage they can't afford without your income.
Should I get mortgage life insurance?
Mortgage life insurance sounds appealing. Knowing that your dependents or heirs won’t have to worry about mortgage payments in the event of your death is comforting. But there are some downsides to mortgage life insurance that you should think about carefully before signing up.
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Mortgage life insurance only covers your mortgage
While other life insurance policies pay cash to your beneficiary, covering much more than just your outstanding mortgage payments, mortgage life insurance only reduces your mortgage balance to $0. Though your family will be in a better position without a mortgage payment, there are still many other expenses following an unexpected death. In addition to funeral costs, other bills won't stop. Traditional life insurance gives your family options for how they want to use the money, providing them with more of a financial safety net in your absence.
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Mortgages are relatively inexpensive
While your mortgage is likely your most significant after-tax expense, mortgages have a low cost of borrowing when compared with other loans. Your family may actually be better off with a life insurance payment that allows them to pay off more expensive debt rather than eliminating your mortgage.
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Mortgages are elastic
Because your mortgage is secured against your home, you (and your family) have a fair amount of flexibility to make changes. Depending on how much time you have left on your mortgage, your family could refinance the mortgage and reduce the monthly payment significantly to an amount they can afford. They could also sell the home and downsize, potentially making a profit on the sale even after paying off the mortgage.
If you are considering refinancing, Ratehub offers the best mortgage rates in Canada.
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Mortgage life insurance coverage depreciates over time
When you get mortgage life insurance, your payments stay the same for the term of your mortgage. But as you pay the mortgage off, the amount your policy pays out is reduced. If you make additional payments toward your mortgage, you lose that amount of coverage. Other life insurance products offer coverage guaranteed to stay the same or even go up over time. They are much better investments.