Deep dive on mortgage protection options in Canada

This topic is close to our hearts because it’s about your home. Not to mention probably the single most expensive thing you’ve ever bought. We’re passionate about spreading the word about why life insurance as a mortgage protection solution can often be a better choice for homeowners than traditional mortgage insurance from a lender. We want to help you protect your biggest asset and also make the most of your money.

First things first: mortgage protection is designed to help cover the balance of your mortgage if something happens – like if you die or get sick and are unable to work – not to cover your monthly mortgage payments in case you’re unable to make them. We’re also not talking about the mortgage loan insurance you may have as a condition of your mortgage.

With that out of the way, it’s time to do a deep dive on how mortgage protection works and what Prospr’s mortgage protection solutions are all about.

We like to say that while mortgage insurance covers the outstanding balance of your mortgage,  protecting your mortgage with life insurance gives you more flexibility and value for your money.

This is for two reasons:

1. Mortgage insurance from a lender covers only your outstanding mortgage balance and the money goes directly to the mortgage lender and sometimes the bank (depending on the conditions of your mortgage). Other mortgage protection options (like life insurance) provides a lump sum to use how your beneficiary (your loved ones) wishes. This lump sum can help pay for the mortgage, cover debts, pay for childcare, and more.
2. When you buy traditional mortgage insurance, your monthly premiums stay the same, but the coverage amount actually decreases as you pay down your mortgage. That’s because this type of insurance covers only your outstanding mortgage balance. But if you’re using life insurance to help protect your mortgage, you're always covered for the same amount as long as you have the policy, even if you sell your house or change mortgage lenders.

Here’s a quick view chart to show you the differences in types of insurance to protect your mortgage. We’ll go over the ones that Prospr offers in detail below.

* as long as your policy is still in force

Let’s get into these in a bit more detail.

Mortgage protection using life insurance

One way to protect your mortgage is through a life insurance policy.

With life insurance, you buy a policy for a certain coverage amount and, as long as it remains in force, it pays out to your appointed beneficiaries if you die.

Working with an advisor, you’d decide what amount of coverage makes sense based on your overall insurance needs. What’s your insurance need? Essentially, you’re trying to figure out how much you’d need to leave your loved ones to help cover their expenses, which your advisor can help you determine. The payout of this policy could help cover your mortgage plus other debts or expenses, or whatever your family needs.

Typically a term life insurance policy is a good option for mortgage protection, because you can select different term lengths (amounts of time) and align it with your mortgage or other time frames for which you might think you need protection. If you have only 10 years left on your mortgage, you might want only a 10-year term. If you’re just starting out on a 25-year mortgage, you might consider a 20-, 25- or even 30-year term.

If you decide to get your term insurance through Prospr, you may even be able to easily increase your coverage if your needs change based on life events.

Now that we’ve convinced you to think about a term life insurance policy to help protect your mortgage, what if we told you that we have another idea to help you protect it even better? Keep reading to find out how to level up your protection.

Mortgage protection using life insurance + CII

While life insurance is an important component of protecting your mortgage, it helps support your loved ones only in the event of your death.

A solid mortgage protection solution helps support your loved ones and you by providing a contingency in case you’re diagnosed with a serious covered illness.

Critical illness insurance (CII) – sometimes referred to as a living benefit – helps cover the costs of coping with and recovering from a covered critical illness such as cancer or stroke. It provides you with a lump sum payment that can help you cover your mortgage and other expenses if you need to take time away from work, to focus on your recovery, or to manage the other expenses that might arise from your illness.

There’s also an optional benefit you can add to your CII policy (though it depends on your age) called return of premium on cancellation. With this you may be able to get some or all of your premiums back if you cancel the policy after a certain amount of time without having claimed against it.

Mortgage protection using life insurance + CII + disability waiver

Some mortgage protection solutions also consider an option to help protect you in case you become disabled and unable to work.

Figuring out if you need disability protection is more complex, since you might have some coverage already through your work. As we always say, a Prospr advisor can help you understand what’s best for your needs and recommend a good disability solution for you.

Prospr also offers an option on some life and critical illness insurance policies. While not disability protection outright, this optional benefit maintains coverage if the insured person becomes totally disabled and is unable to earn an income. Your policy will outline details about the Total disability waiver and your advisor can also help explain it.

ABP: Always be prepared!

While these insurance offerings help you protect your mortgage payments if something happens to your health (and by extension your ability to earn money), what about preparing for the effects of a job loss – or any unexpected financial burden for that matter?

A great way to be prepared is by establishing an emergency fund, making sure you can cover your expenses and mortgage payments for at least 6 months.

Prospr is here to help if you want to discuss protecting your mortgage, setting up your emergency fund, or other financial questions.