Term Insurance vs. Mortgage Insurance

When purchasing a home in Ontario, homeowners are faced with a decision: Should they opt for mortgage insurance or term life insurance? Both products provide a financial safety net in the event of death, but they differ significantly in terms of coverage, cost and flexibility. Understanding these differences is crucial for making an informed choice.

Mortgage insurance is typically offered by banks or lenders and is designed specifically to pay off your mortgage balance if you die. This means that if you pass away, the remaining balance of your mortgage is cleared, but the payout goes directly to the lender—not to your beneficiaries. The coverage amount decreases over time as you pay down your mortgage, while your premiums remain the same. This diminishing value means that as you owe less, the potential benefit reduces, which might not align with your overall financial protection goals. Coverage may also disappear should you refinance, change lenders or banks, or move.

Term life insurance, on the other hand, provides a fixed amount of coverage for a specified term, such as 10, 20 or 30 years. If you pass away during the term, the benefit is paid directly to your named beneficiaries, who can use it to pay off the mortgage or for other financial needs, like children’s education or daily expenses. This flexibility allows your family to decide how to best allocate the funds. Another advantage of term insurance is that the coverage amount remains fixed throughout the term, even if your mortgage decreases. This ensures that your beneficiaries receive the full payout, providing peace of mind knowing the coverage is secure. While term life insurance may initially seem more expensive than mortgage insurance, it often provides better value because it offers consistent coverage and flexibility. 

In Ontario, choosing between mortgage insurance and term life insurance ultimately depends on your financial goals and needs. However, for most people, term life insurance provides more comprehensive coverage, greater flexibility, and ensures that loved ones have control over how to use the benefits, making it the preferred option for protecting a family’s financial future.

For a personalized quote or if you have questions, contact our office at 519-633-8448, extension 101, or email Amy at am*@******ns.com.

 

Amy Skalozub R.I.B (Ont.), LLQP, Senior Account Manager, Kenny Insurance Brokers