Mortgage Insurance vs Life Insurance

What is Mortgage Insurance?¶

Mortgage insurance (also called mortgage life insurance) is a type of policy you can purchase to protect the outstanding amount of the mortgage on your home. If you pass away, the benefit is applied to the balance you owe on your mortgage.

The intent is to ensure that your family can remain in your home, even though you’re no longer around to help with payments.

Unfortunately there are a few problems with mortgage insurance:

1. The benefit shrinks with your mortgage, but the premiums don’t. As you pay down your mortgage, the amount that your policy needs to protect drops — but your family doesn’t receive the difference. The premiums, however, don’t drop over time. 
2. The bank gets the benefit, not your family. Any payout from the policy goes only to the bank and is applied to your mortgage. If your family would rather sell the house, or if there’s another breadwinner and payments aren’t a problem, the money can’t be applied to other expenses.
3. If you move your mortgage, you can’t move your coverage. If you find a better mortgage rate at another bank, you can transfer your mortgage — but the coverage won’t follow you to the new bank.
4. Eligibility for coverage isn’t fully evaluated in advance. When the time comes to make a claim, you may find that a pre-existing health condition means your policy is invalidated. That’s because medical underwriting (a health evaluation) isn’t done in advance with mortgage insurance.
5. If you pay off your mortgage, the coverage stops.

Life Insurance Provides the Flexibility You Need¶

With a life insurance policy, you get what you pay for. If you take out a policy with a $400,000 benefit to cover your $400,000 mortgage, your family would receive the entire amount.

Let’s say many years have passed and you die when there’s only $200,000 remaining of the mortgage. In this situation, your family could use part of the benefit to pay off the mortgage, and use the remainder for anything they wish. The additional funds could be applied to funeral expenses, estate taxes, or even saved for future needs like your children’s education.

The Palladium Difference¶

Palladium can help you find a more flexible life, critical illness and disability mortgage protection solution. There’s an incredible variety of insurers and policy types out there. Once we understand your needs and preferences, we’ll shop around for the perfect policy on your behalf. Advantages include:

1. Your benefit amount remains the same. If you pass away after you’ve paid down your mortgage, that means there’s more for your family to use for other things. If you sell your property, your coverage will remain unaffected.
2. Premiums can remain the same and are guaranteed for the life of your coverage. When you renew your mortgage, it won’t affect the amount of your premiums or the payout.
3. Your family is the beneficiary. You name who the beneficiaries are and how much they will receive — you can even leave money to friends or a favourite charity. They can use the benefits as they see fit, unless you provide specific instructions.
4. Coverage is always portable. If you change the bank that holds your mortgage, it won’t affect your policy.
5. You are medically underwritten once, at the time of your application. If there are any serious health concerns that affect your eligibility for coverage, they will be revealed at that time. Not all health issues will disqualify you from coverage, but they may affect the premiums. For example, a heavy smoker presents a greater risk than a non-smoker.
6. You are in control of your policy. Only you can determine when it will lapse. Depending on your goals and your budget, you can purchase term insurance for a set number of years, or permanent insurance that never expires.

When it comes to insurance policies there are many options — ask your Palladium advisor to customize a solution to meet your specific financial situation and your wishes.