Life or mortgage insurance? Which one should you choose?

Mortgage insurance: Fast, but rigid

Also known as “creditor insurance,” mortgage life insurance is offered by the institution financing your home purchase—in other words, your mortgage lender.

Advantages:

• Easy to obtain, often with no medical exam or health assessment. You only need to answer a few questions about your health to be approved.
• Tied to your mortgage: no need to look elsewhere.
• Approved quickly, often at the same time as your mortgage.

Disadvantages:

• In the event of death, the money is paid directly to the financial institution, not to your loved ones.
• Not very flexible: if you switch lenders, you will need to take out new insurance.
• The insurance premium is often fixed, even as your outstanding mortgage balance decreases.

Term life insurance: For greater flexibility

The other option to cover your mortgage payments is an individual term life insurance policy. This coverage is often more flexible than mortgage insurance, less expensive, and better suited to families with young children.

Term life insurance provides coverage for a defined period, typically 10 to 30 years. If you pass away during that period, your loved ones will receive a tax-free lump sum. They can use this money however they see fit—to cover rent, pay off a mortgage, handle funeral expenses, or manage other essential costs.

Advantages:

• Death benefit paid directly to your loved ones, not to your financial institution.
• Flexible coverage tailored to your needs (term length, coverage amount, adjustments available).
• Often more affordable over the long term.
• Ability to combine multiple insurance policies to better cover your financial obligations (laddering strategy).

Disadvantages:

• More formal application process, including a health questionnaire (and sometimes a medical exam). For example, if you smoke, your premiums will generally be higher than those of a non-smoker.
• Requires careful advance assessment of your needs.

To avoid any claim denial, it is best to be completely honest at the time of application. If you have health issues or a medical history, term life insurance may be more expensive or harder to obtain.

Eligibility conditions vary by insurance company, particularly regarding medical requirements and available coverage amounts.

Which type of insurance should you choose to protect yourself effectively?

When to choose mortgage insurance?

Mortgage insurance is a quick and convenient option for paying off your outstanding mortgage balance in the event of death. It is ideal if you do not anticipate switching lenders and if you have no dependants.

Since it is a group insurance product with few eligibility criteria, it is often a more affordable choice for individuals with pre-existing health conditions.

When to choose term life insurance?

Term life insurance is ideal if you have varied financial responsibilities, such as dependent children or debts beyond your mortgage. It also gives your loved ones greater flexibility to deal with a range of situations.

Before purchasing insurance, take the time to think about your short- and long-term financial goals. Still have questions? A financial security advisor can guide you in choosing the solution best suited to your situation.