Do I need mortgage insurance from my bank?

Do I need mortgage insurance from my bank?

The short answer is no. Regular life insurance is a much better option. But here's the long answer:

When you get a mortgage, your lender will likely offer you “mortgage protection insurance” – a kind of life insurance that will pay off your mortgage in case you die or become disabled. The premiums get rolled right into your monthly mortgage payment.

It may sound great, but financial experts will tell you it's not a good use of your money. For one, the payouts actually get smaller as you pay down your mortgage – the policy only covers what you still owe, so while that amount shrinks, your insurance premiums stay the same. And you have to renew the insurance at the end of each mortgage term, so even though it’s covering a smaller and smaller amount, you’re getting older, so you may need to actually pay more to cover less. And finally, the payout goes to your lender, not your family, so there's a lot less flexibility for what can be done with that money.

Regular life insurance is a better alternative.

With traditional life insurance, if you have a policy that covers a $600,000 mortgage, it pays out $600,000 at the end, no matter what’s still left on your mortgage. And it goes directly to your beneficiaries, not your lender, so it can be used to pay off that outstanding debt – or for something else entirely. Plus, life insurance is usually a lot cheaper than mortgage protection insurance. Bottom line? You pay less and get more.

So why do people bother getting insurance through their bank? Often it's a just matter of not being educated about it. It ends up being just another bit of paperwork in a big pile. And loan officers get commissions on the insurance they sell, so they’re motivated to offer it. It definitely pays to educate yourself.

Want more info? Read this Global News article that dives deeper into the issue.

The mortgage protection insurance the banks offer isn’t the same as the mortgage loan insurance you have to pay if you put less than 20% down. (But it’s easy to see how people would be confused by it.) That’s a non-optional expense that comes from the CMHC, Genworth or other insurers, and protects lenders in case borrowers default.

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