Do I Need Mortgage Protection Insurance?

By Stacey Sheperd, Mortgage Professional for Dominion Lending Centres

As the Seasons Change, Your Mortgage Insurance Needs Could Too

If you have a mortgage, do you need mortgage protection insurance? It’s a question a lot of people have, so I want to clear up a common misconception and explain who may benefit from this type of coverage.

The biggest misconception: You already have mortgage insurance. When you purchase a home, your downpayment will determine if you are legally required to purchase mortgage default insurance. If your down payment is less than 20% of the purchase price, mortgage default insurance is generally required. BUT that insurance is for the lender, not you! Mortgage default insurance protects the lender if a borrower defaults on their mortgage. Although the borrower typically pays the insurance premium, the coverage protects the lender and not the borrower or their family.

Mortgage insurance, or a mortgage protection plan, is an insurance product that protects you and your family in various scenarios. Insurance product offerings typically include life, illness, and/or disability. Let’s look into them in more detail:

Mortgage life insurance: This is intended to pay off your mortgage in full in the event of your death. It may make sense if you’re the primary income earner for your family, have young children, or want your spouse or family to be able to stay in the home if you pass away and they would otherwise be unable to make the mortgage payments without your income.

Mortgage critical illness and disability insurance: This type of coverage is intended to make your mortgage payments for you during the course of your injury or disability. It does not pay off any outstanding balances but rather makes regular payments when you are not working or receiving your regular income. It might include job loss insurance as well, depending on your policy. Here, you’ll need to carefully review what is and isn’t covered to avoid any lapse in coverage, uninsured illnesses, etc.

For any type of mortgage insurance, coverage may overlap with your employer-provided or private policies. It’s always wise to have an expert review your overall coverage to see about any overlap or gaps.

Here are a few questions I hear from clients when we talk about mortgage insurance:

• Is it required? No, this type of insurance is completely optional. Lenders can’t deny your mortgage application based on your insurance purchase or lack of purchase. You must give your explicit consent on the product.
• Who provides this insurance? There are plenty of mortgage insurance providers, like major banks and insurance companies.
• What if I move my mortgage to a different lender? This type of insurance is really helpful in this scenario as it stays with you, regardless of what lender you move your mortgage to.
• What kind of benefits could I get if something happens to me? Depending on your policy, your regular mortgage payments might be covered for a specific amount of time, or the outstanding balance of your mortgage might be fully paid off. Each policy is customized to meet your specific needs.
• When would a benefit not be paid out? There are circumstances where you won’t be covered under your mortgage insurance policy. Things like preexisting medical conditions, criminal acts, acts of war, and self-inflicted injuries will all disqualify you from a payout (just to name a few).

Everyone will have different mortgage insurance needs, or maybe no need in some cases! Having a one-on-one conversation with your insurance agent is always worthwhile. If you do get an insurance policy, be sure you read it carefully to understand what’s covered and ask questions if there’s anything you don’t understand.

If you have questions, contact Stacey directly at 587-783-2511 or Stacey@MortgageDream.ca