What is the difference between term and mortgage insurance?

Insurance is a key component of a solid financial plan. However, choosing between term insurance and mortgage insurance can be confusing. This video was created to highlight the key differences between these two forms of protection. 

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Video transcript

As a Canadian homeowner or prospective homeowner, you’ve probably heard of term insurance and mortgage insurance, but what is the difference? 

Term Insurance

Let’s start with term insurance. The policy is set for a fixed amount, which does not decrease over time. Whatever amount of coverage you purchase is what your beneficiaries will receive upon your passing. The payout is not tied to your mortgage.

Your beneficiaries can use the death benefit for anything, for example, their mortgage, education, bills, or investments. You select your beneficiaries. This ensures that the payout goes directly to the people you’ve designated. Your premiums generally remain consistent for the term you use, be it 10, 20 or 30 years and are based on your personal statistics such as age or health status. 

Mortgage Insurance

Now, let’s look at mortgage insurance. Mortgage insurance will cover the remaining mortgage amount upon your passing. The payout will be used to pay off your mortgage, and your beneficiaries may not see any additional benefits. The bank or mortgage lender is often the beneficiary, which ensures their loan is paid off. As you pay the mortgage down, the amount covered by insurance decreases. However, your premiums usually stay the same. 

Essentially, you’re paying the same amount for less coverage as time goes on. The cost of the plan is not fully tied to your personal statistics but rather to a larger pool group with the lender. 

Having an insurance policy to help cover your mortgage and unforeseen events is important. So, which is right for you? That depends. Speak to a professional about your unique situation or how to find the best fit for you.