Buying a home is a major milestone. For most Canadians, taking out a mortgage is part of the process. When your lender offers you mortgage life insurance, it might seem convenient—but is it the best option? Let’s explore why individual life insurance is often a smarter, more flexible, and cost-effective choice for homeowners in Ontario.
1. Who Controls the Policy?
Mortgage Life Insurance: The lender owns the policy and is the beneficiary. If something happens to you, the payout goes directly to the lender to cover the remaining mortgage balance. Your family doesn’t have any control over how the money is used.
Individual Life Insurance: You own the policy, and you choose the beneficiary. This means your loved ones get the payout and can decide how to use it—whether it’s to pay off the mortgage, cover living expenses, or save for future needs.
2. Coverage Amount
Mortgage Life Insurance: The coverage amount decreases as you pay down your mortgage, but your premiums stay the same. Essentially, you’re paying the same price for less coverage over time.
Individual Life Insurance: Your coverage amount remains constant throughout the policy term. This ensures your family receives the full benefit, no matter how much you’ve paid off on the mortgage.
3. Portability
Mortgage Life Insurance: This type of insurance is tied to your mortgage. If you refinance, switch lenders, or pay off the mortgage, the coverage ends. You’d need to reapply for new insurance, which could be more expensive or harder to get if your health has changed.
Individual Life Insurance: It’s independent of your mortgage, so your coverage stays with you no matter where you go or who your lender is.
4. Cost and Affordability
Mortgage Life Insurance: It’s often more expensive for the value you get, and the premiums aren’t personalized to your risk profile.
Individual Life Insurance: It’s typically more affordable, especially for younger homeowners. Premiums are based on factors like your age, health, and the amount of coverage you need, giving you better value for your money.
5. Underwriting Process
Mortgage Life Insurance: This insurance uses post-claim underwriting, meaning your eligibility is only assessed after a claim is made. This could result in denied claims, leaving your family without the protection you expected.
Individual Life Insurance: With pre-claim underwriting, your eligibility is determined when you apply. This way, you and your family can be confident that the coverage will be there when you need it most.
A Real-Life Scenario
Imagine you’re a property owner in Ontario. Whether you’ve purchased your first home, upgraded to a bigger house, or invested in a rental property, protecting your mortgage is essential. With mortgage life insurance, if something happens to you, the payout goes directly to the lender to cover the remaining balance. That’s all it does.
On the other hand, with individual life insurance, the payout goes to your chosen beneficiary—your partner, children, or another loved one. They have the flexibility to decide how best to use the funds, whether it’s paying off the mortgage, covering living expenses, or saving for future priorities. It’s about giving your family options and ensuring their financial security.
The Bottom Line
Individual life insurance offers more flexibility, control, and value than mortgage life insurance offered by your lender. It ensures your family’s financial future isn’t tied solely to your mortgage but is protected in a way that meets their unique needs.
At Freitas Financial Inc., I specialize in finding the best and most affordable life insurance solutions tailored to your situation. Let’s chat about how we can help you protect what matters most. Book a call today and take the first step toward peace of mind.