How Much Mortgage Life Insurance Costs in Canada
Is mortgage life insurance worth the investment? Learn what you can expect to pay for mortgage life insurance in Canada. With average industry rates for 2023.
What is mortgage life insurance?
Mortgage life insurance is an optional type of insurance policy that pays off your mortgage if you pass away with an outstanding balance. The policy’s lump sum benefit is paid directly to your bank or lender, unlike traditional life insurance, which provides a tax-free lump sum payout to your chosen beneficiaries.
In general, mortgage life insurance is considered less practical than traditional life insurance because the payout decreases over time as you pay off your mortgage balance, but your premiums stay the same. Coverage is also tied to the mortgage it's purchased for, so if you move or switch lenders, the policy is terminated.
Mortgage life insurance is not mandatory in Canada. It is an optional type of life insurance that you can purchase through your bank, lender, mortgage broker, or credit union.
How much does mortgage life insurance cost in Canada?
The cost of mortgage life insurance varies based on a number of factors including:
- Your age (priced on an age range)
- Your provider (lender or bank)
- Your mortgage balance at the time of purchasing coverage
These elements often result in higher premiums for mortgage life insurance, especially compared to standard life insurance costs.
For context, here’s a comparison of average starting monthly premiums for mortgage life insurance, based on a 20-year, $500K policy for a 35-year-old non-smoking woman.
Why does mortgage life insurance cost so much?
Mortgage life insurance is generally costly because it is often underwritten after a claim is made, reports the Globe and Mail, so the insurance provider assumes everyone has the same level of "risk."
This means the same rates apply to all applicants, regardless of whether you smoke a pack of cigarettes a day or exercise daily. So if you are of average health, you’re not getting the most affordable coverage possible if you choose mortgage life insurance.
Premiums are also heavily influenced by the size of your mortgage balance when you apply, with rates ranging between 2.8% to 4% of your mortgage amount.
The payout for standard life insurance typically remains the same throughout the life of the policy, but mortgage life insurance payouts decrease as you pay off your mortgage balance, and premiums stay the same. This means you’re paying a fixed rate for coverage that decreases over time, which is why people see better value in standard term life insurance with fixed coverage.
Cost comparison: term life insurance vs. mortgage life insurance
Term life insurance is typically more affordable than mortgage life insurance. In fact, you can save up to $22,497.60 over a 20-year amortization period by choosing term life insurance instead.
We’ve pulled quotes for both policy types to give you a realistic idea of the monthly premiums between mortgage life insurance (using TD mortgage life insurance as an example) and 20-year term quotes for $500,000 in coverage for a non-smoking woman. Take note that these are average starting rates for applicants of average health.
On top of being cheaper, term life coverage generally doesn’t decrease over time like mortgage life insurance coverage, so you’re not paying for less protection with every payment.
Term life insurance also provides a flexible tax-free lump sum payout for your loved ones to use however they choose, which can include paying off your mortgage and tending to other financial responsibilities. On the other hand, mortgage life insurance pays a lump sum directly to your bank or lender, covering only your mortgage.
In short, term life insurance offers more value for its price, and it can provide peace of mind that your family is financially protected if you pass during the term.
Mortgage life insurance cost: example scenarios
Let’s look at a few common scenarios to give you a better idea of the cost of life insurance for the average homeowner.
- Profile: Both age 30, non-smokers, $650,000 mortgage balance.
- Estimate mortgage life insurance cost: $160 per month combined (coverage shrinks as mortgage is paid off).
- Estimate term life insurance cost: $35 per month per person or $70 combined for two 30-year term policies with $650,000 in coverage.
- Best choice: Term life insurance. Over 30 years, Miranda and Gale could pay thousands of dollars more for shrinking mortgage life insurance, but term life helps them each lock in leveled protection and keep more money in their pockets.
- Profile: Age 40, smoker, $400,000 mortgage
- Estimate mortgage life insurance cost: $120 per month (coverage shrinks as mortgage is paid off).
- Estimate term life insurance: $105 per month for a 20-year term policy with $400,000 in coverage.
- Best choice: Term life insurance. Hameed will save around $15 per month with a term policy, which can add up to thousands of dollars over 20 years. His beneficiaries will also have more flexibility to use the death benefit however they please.
When is mortgage life insurance worth it?
Having some form of life insurance coverage is definitely worth it if you’ve got a mortgage and financial dependents, but mortgage life insurance isn’t the wisest choice for most Canadians.
Since mortgage life insurance isn’t medically underwritten when it’s first purchased, some people see it as a good option if they can’t qualify for standard life insurance. But this can lead to a denied claim in the future, and there are other, more reliable alternatives.
What to consider before buying life insurance for your mortgage
Mortgage life insurance can be a costly commitment, so before you sign up for coverage, ask yourself these questions:
- Who gets the payout? With mortgage life insurance, it’s the bank. Opt for term life coverage if you want flexible protection for your loved ones.
- Will my coverage last? Your mortgage life coverage will end if you move, switch lenders, refinance, or pay off your mortgage. Standard life insurance sticks with you, regardless of your mortgage status.
- Am I okay with paying the same premium for less coverage? Keep in mind that your mortgage life insurance coverage will shrink as your mortgage balance decreases, but your premiums are fixed.
- Have I checked term life rates first? Term life insurance is usually cheaper and more flexible than mortgage life insurance.
- Do I need coverage for things outside of my mortgage? Term life can also provide for childcare expenses, education, replace lost income, or other debts.
Bottom line: Term life insurance almost always beats mortgage life insurance for flexibility, affordability, and financial support for your family.
FAQs: Average mortgage life insurance cost
Jaya is a researcher and writer with 3 years of experience in insurance and finance. She writes in-depth content that bridges technical expertise with accessible insights. Her work spans topics such as life insurance, health and dental coverage, car insurance, and financial literacy, helping Canadians make informed decisions about their financial protection. With a background in market research and editorial strategy, she collaborates closely with subject matter experts to ensure accuracy, clarity, and value in every piece.
Jaya is a researcher and writer with 3 years of experience in insurance and finance. She writes in-depth content that bridges technical expertise with accessible insights. Her work spans topics such as life insurance, health and dental coverage, car insurance, and financial literacy, helping Canadians make informed decisions about their financial protection. With a background in market research and editorial strategy, she collaborates closely with subject matter experts to ensure accuracy, clarity, and value in every piece.