Mortgage Life Insurance in Canada

Mortgage life insurance is optional coverage that can pay off the balance of your mortgage if you die. The money goes to your lender, not your family, and the amount covered usually shrinks as you pay down the loan while the premium generally stays the same. In Canada, it is a different product from CMHC default insurance, and individual term life insurance is an alternative.

What is mortgage life insurance?

Mortgage life insurance is a type of creditor insurance tied to your home loan. The Financial Consumer Agency of Canada (FCAC) describes it as an optional product that may pay the balance on your mortgage to the lender when you die. It is usually offered when you take out or renew a mortgage, either by the lender or by another insurer.

It covers one debt, not lost income or other household expenses.

Is mortgage life insurance the same as CMHC mortgage insurance?

No. CMHC explains that mortgage loan insurance, also called mortgage default insurance, is required when you put down less than 20% of the purchase price on a home priced under $1.5 million, and protects the lender, not the buyer, if the borrower stops paying. The FCAC notes that mortgage life insurance is a different product: it is optional and pays the lender only after a covered death.

So if a quote for "mortgage insurance" comes with your mortgage approval, ask which one it is. Paying for default insurance does not give your family any life insurance.

How much does CMHC mortgage insurance cost?

CMHC default insurance is priced as a percentage of the loan, and the rate rises as your down payment gets smaller. CMHC says the lender pays the premium and typically passes the cost on to you, and gives you the exact price when you apply. Here is what its published rates mean on a $400,000 loan when you put down less than 20%.

A 4.50% rate applies at 90.01% to 95% loan-to-value when the down payment comes from a non-traditional source. In Quebec, Ontario and Saskatchewan, provincial sales tax also applies to the premium and can't be added to the loan. None of this buys life insurance: it protects the lender if payments stop.

How does mortgage life insurance work in Canada?

With lender coverage, the insurer pays your lender, not your family. The benefit equals the outstanding balance, so it decreases as you make payments. According to the FCAC, premiums are based on your age and the amount of your mortgage when you apply, are usually added to your mortgage payment and generally stay the same even as your balance goes down.

• Eligibility: the FCAC's page on credit and loan insurance says applicants usually need to be at least 18 and under a maximum age that is often between 65 and 70.
• Health questions: you usually answer a short yes-or-no health questionnaire. The insurer may approve you right away or ask for a medical exam first. Individual policies have their own process: see how no medical life insurance works.
• Accuracy matters: coverage won't be valid if your answers aren't accurate. A pre-existing condition related to the claim can also lead to a refusal, depending on the terms.
• Claims: the claim must usually be made within a set period, often between 90 days and a year, as stated in your certificate of insurance.

When are your health answers checked?

For lender coverage, you usually answer a short yes-or-no health questionnaire. The insurer may approve you right away or require a medical exam before approval. When a claim is made, the FCAC says the insurer may request more information. Depending on the policy, a pre-existing condition related to the claim may prevent payment. Answer each question carefully and keep a copy of what you signed.

For traditional and simplified issue individual life insurance, the insurer assesses your health before issuing the policy, using a questionnaire and, for some products, medical tests, as the AMF explains. In Quebec, the AMF explains that if death occurs more than two years after the contract takes effect, the insurer can deny the death benefit on the basis of incomplete or inaccurate health or lifestyle information only if it proves that the information was deliberately provided to commit fraud. Other policy exclusions may still apply.

What happens to your mortgage if you die?

The mortgage doesn't disappear. If lender coverage is in force and the claim is accepted, the insurer pays your lender the amount covered by the policy. This may repay all or part of the mortgage and help your family stay in the home.

Without coverage, the balance still has to be repaid. The FCAC points out that the home can be sold to pay back the mortgage. If someone signed the mortgage with you, ask your lender what they would owe. Individual life insurance gives your beneficiaries a lump sum they can put toward the mortgage or any other cost.

Is mortgage life insurance mandatory?

Not in the sense many borrowers assume. The FCAC says you don't need optional mortgage insurance to be approved for a mortgage, the lender can't insist that you buy it and it requires your express consent. A lender also can't make it a condition of another product, which is called coercive tied selling. These federal protections apply when you deal with a bank or another federally regulated lender.

In Quebec, the Autorité des marchés financiers (AMF) adds a nuance: a lender may require that your loan be insured, but it can't force you to buy a specific product or choose a specific insurer. If insurance is required, ask what the lender needs in writing and whether an individual policy you already own could meet it.

What must your lender tell you before you sign?

When a federally regulated lender offers you optional mortgage life insurance, the FCAC says it must inform you of the charges, get your express consent and give you the option to cancel. A bank must also give you a separate disclosure statement before you consent. Ask for the certificate of insurance as well: the FCAC notes that it sets out your eligibility, any limits on claims and any maximum age.

Mortgage life insurance vs term life insurance: what's the difference?

The FCAC notes that term or permanent life insurance may provide better value because its death benefit doesn't decrease over the term of the policy. The main differences are who gets paid, how much and what the money can be used for. For a closer comparison, read our guide on life insurance vs mortgage insurance.

Illustrative example: a couple takes out a 25-year mortgage and accepts the lender's coverage. Fifteen years later, most of the loan is repaid. If one of them dies, the lender coverage pays only the remaining balance. If a level term policy bought for the original amount is still in force and the claim is covered, it would pay that amount to the named beneficiary, who could clear the mortgage and use the rest for household costs. This example shows how the two structures differ; it does not predict the price or suitability of either option.

How much does mortgage life insurance cost?

There is no single price. The FCAC says lender premiums depend on your age and mortgage amount. The AMF adds that lender coverage can cost more when the loan is renewed, often after five years, while individual coverage bought through an insurance firm is priced on factors such as the amount, your age, health and smoking status.

To compare fairly, ask for the annual cost of each option for the same amount and period, and check how the coverage changes over time. Individual term life isn't always cheaper; that depends on your age, health and the amount you need. You can see how prices are set on our life insurance price page.

What happens when you renew, refinance or switch lenders?

Lender coverage follows one loan. The AMF says that if you change lenders, you will have to buy new insurance, provided you are still insurable. A refinance or a larger loan raises the same questions.

• Ask whether your current coverage continues with the new loan and for how much.
• Ask whether new health questions or a new premium apply.
• If replacing coverage, do not cancel the existing policy before the new one is approved and in force. Check whether lender coverage ends automatically when you switch.

An individual policy isn't tied to a lender, so it doesn't end because you move your mortgage. Check its remaining term and renewal conditions when you plan the new loan.

Do you need mortgage life insurance?

Start with what your family would need, not with the product offered at signing. The FCAC suggests checking whether coverage through your employer or another policy already meets your needs, and notes that your home can be sold to repay the mortgage, so this insurance may not be necessary for everyone.

If your partner or children would want to stay in the home, add the mortgage balance to other needs such as lost income, other debts and child care. Our guide on how much life insurance you need walks through that calculation.

Frequently asked questions about mortgage life insurance

Who is the beneficiary of mortgage life insurance?

For lender coverage, the lender receives the benefit and applies it to your debt. With an individual policy, you name your beneficiaries. A lender can sometimes ask to be named for the amount of the debt, so read any condition it sets.

When does mortgage life insurance end?

Check your certificate of insurance for when lender coverage ends, including any age limit, and ask what happens if you pay off the mortgage or change lenders. You can cancel lender coverage, and switching lenders may require a new application. The FCAC says the maximum age to qualify is often between 65 and 70; that is not necessarily the age when existing coverage ends. An individual term policy is not tied to the mortgage, but it must remain in force under its own terms.

Can I cancel mortgage life insurance?

The FCAC says you may cancel credit or loan insurance at any time by following the steps in your certificate of insurance. Before cancelling, confirm that any replacement coverage has been approved and is in force, and check whether your lender requires insurance on the loan.

Does mortgage life insurance cover disability or critical illness?

Not automatically. Disability, critical illness and job loss coverage are separate benefits that may be offered with a mortgage, each with its own definitions, exclusions and limits. Ask to see the certificate of insurance before you apply.

Can term life insurance cover my mortgage?

Yes. Your beneficiaries can use a term life benefit to pay off the home loan or for other needs. If term coverage you already own is enough for the mortgage and your other needs, you may not need lender coverage as well. Choose a term and amount that match your loan and your family's needs. Our term life insurance guide explains how terms and renewals work.