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Your home is, well, home! It’s a happy place for you and your family, somewhere everyone loves to be. But, purchasing a home is likely also one of the biggest debts you’ve ever taken on — one that could take decades to pay off.
Because life moves quickly, and a lot can happen in the 5–30+ years it takes to pay off your home, most insurance providers offer Mortgage Insurance. It helps to ensure that you and your loved ones won’t suffer financially if you’re not able to pay off your debt the way you plan to, making it a really good thing to have. But ultimately, Mortgage Insurance is an added monthly expense, which leaves many Canadian homeowners and homeowners-to-be wondering: Is Mortgage Insurance mandatory? And, is it worth it?
Mortgage Insurance was designed to protect either the financial institution providing the mortgage (through Creditor Insurance), or the insured homeowner themselves (through an individual policy).
It was developed upon the premise that debt should die with the debtor. In other words, if an insured homeowner passes away or can’t pay their mortgage for other reasons, Mortgage Insurance makes sure that no financial obligations are left for others to handle.
Most insurers give you the option to add-on Accident and Sickness coverage (also known as Disability Insurance). This way, if you were to become sick or injured to the point where you could no longer work, your insurance proceeds would cover your mortgage payments.
(Have more questions about how Mortgage Insurance works? Contact us!)
In short, no, Mortgage Insurance is not mandatory in Canada, but some financial institutions may require it in order to approve your mortgage.
That said, we highly recommend getting mortgage insurance, simply because it’s in your best interest. If you were to get sick, become injured, or pass away before your mortgage was paid off, Mortgage Insurance would make sure that your debt obligations could continue to be met without negatively impacting your loved ones financially. The peace of mind that Mortgage Insurance offers really is priceless!
There are two ways to purchase and secure Mortgage Insurance:
When you purchase Mortgage Insurance through your financial institution, you’ll pay a premium (usually a monthly amount) that’s either paid on its own or tacked on to your mortgage payment. This insurance protects the financial institution in the event of your death, sickness or illness, so that any outstanding debt payments are paid by the policy.
Another option is to purchase an individual life insurance policy in an amount large enough to cover any unpaid mortgage debt. Then, you’ll either assign the proceeds of your insurance policy to the financial institution that gave you your mortgage, or to a beneficiary of your choosing (usually a close family member or friend).