Canadians typically have 3 choices when it comes to insuring their mortgage:
They can buy term insurance from their life insurance broker
They can buy mortgage insurance from their bank.
They don't have to buy any insurance at all
As an expert in the industry, I don't recommend option #3, especially if you have a spouse and kids.
Option #1 or #2 work fine, but if you like control and saving money, you'll probably go with option #3 - here's why...
Term insurance is a type of insurance which lasts for a specific period of time (hence why it's called term). You can set the number of years you want coverage for, the amount of coverage you'd like, and name specific beneficiaries.
How it works
You pay fixed premiums to your insurance company, usually monthly or annually, for a specific term. The most popular terms are 10 and 20 years.
Your premiums stay level each year. In a 20-year term for example, the premium you pay in year 1, is the same premium you pay in year 20.
At the end of your term, most insurance companies will provide you with the option of renewing your coverage for another specific term, or you can simply terminate the policy.
In some cases, you may even be permitted to convert your term insurance into permanent insurance (a great option if I may).
Okay cool.
Now that you know how it works, why the heck would anyone buy it?
The value behind term insurance
You'll often hear term insurance and mortgage insurance used interchangeably.
Mortgage insurance and term insurance are not the same.
The reason people refer to the two as one, is because term insurance is most commonly used to protect a person's mortgage liability.
Most Canadians are fortunate enough to buy their home own. And in most cases, they'll require a mortgage on that home.
That mortgage is a liability.
Put simply - term insurance protects that liability.
Imagine you own a home, and you have a $400,000 mortgage.
If you were to pass, who would pay that mortgage?
Let's revisit our 3 options.
Who pays?
Option #1 - Buying term insurance from your life insurance broker
Your insurance company hands your beneficiaries a cheque in the amount you're covered for.
Option # 2 - Buying mortgage insurance from your bank
Your bank pays off the remaining balance of your mortgage.
Option #3 - No insurance
Your spouse and/or kids are left with the responsibility of paying your mortgage.
Okay, so clearly option #3 doesn't make sense.
The main differences between term insurance and mortgage insurance are the following:
As I said earlier, if you like control and flexibility, with the added benefits of keeping cash in your pocket, then term insurance is the way to go.
What are the next steps?
The next step would be to have a conversation with your life insurance broker if you already have one.
If you don't, I'd be happy to assist!
You can give me a call on my personal line at 647-393-3474.
To speed up the process, you can complete the 1-minute insurance intake form below, and I'll give you a call within the hour!
Thanks for reading, I hope you got some value!
Best,
Dan
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