Mortgage Basics

Why You Should Get Life Insurance With Your Mortgage (And What Type You Should Get)

Why You Should Get Life Insurance With Your Mortgage (And What Type You Should Get)
Written by
  • Tvine
| Aug 30, 2023
Reviewed, Sep 21, 2023

Table of contents

    In collaboration with PolicyMe.

    A mortgage is one of the biggest financial commitments you’ll make in your life; a reality we’re sure has already sunk in! And if you’ve just bought a new house, you’ll want to protect that purchase and the people who depend on you. That’s where life insurance comes in. 

    Life insurance is essential in making sure your home is protected if you were to pass prematurely. In this article, we’ll walk you through the ins and outs of getting life insurance with your mortgage, so you can breathe a sigh of relief knowing your mortgage, and by extension, your family, will be taken care of in the worst case scenario.

    Key Highlights

    • Life insurance provides a payout if the policyholder passes away during the policy.
    • The payout can go directly to your mortgage lender (mortgage life insurance) or to a beneficiary like your spouse (term life insurance).
    • Term life insurance is a great option for those looking to protect their mortgage and cover any other additional expenses, like child care or other debt.

    Benefits of having term life insurance with your mortgage

    Life insurance provides a financial safety net for your loved ones if the unimaginable were to happen. If you’re a homeowner, a big part of that protection is making sure your family is able to stay in their home. 

    It also provides a tax-free lump sum payout to the policyholder’s beneficiaries if the policyholder passes away. This payout is called a “death benefit” and can be used toward anything your loved ones need, including making mortgage payments.

    We’re curious…

    Are you a first-time buyer?

    If you’re like many other Canadians, paying your mortgage is already a significant financial stressor. It’s not fun to think about, but ask yourself: if you weren’t around, would your family still be able to afford your monthly mortgage payments?

    That’s why having a life insurance policy in place is key in protecting your home and the people who live there. Life insurance will allow your family to maintain their lifestyle and continue making memories in the home you’ve built together.

    But if you’ve just put a downpayment on a home, it can be hard to think about adding another monthly payment to your already tight budget. Thankfully, life insurance doesn’t have to be expensive. In fact, it can cost as little per month as ordering takeout. That’s a small price to pay for peace of mind.

    Choosing the right life insurance to pair with your mortgage

    When choosing a life insurance policy to pair with your mortgage, there are a few important factors to keep in mind:

    • Your mortgage balance: make sure you’re choosing a coverage amount that will be enough to cover it.
    • Your mortgage length: your life insurance should cover your for at least the length of your mortgage term.
    • The type of life insurance: there are several different types of life insurance to choose from.

    When it comes to protecting your home, we’ve picked 3 popular types of life insurance to look at. Let’s break them down.

    Term life insurance

    Term life insurance provides coverage for a fixed period (or “term”). Common term lengths are 10, 20, or 30 years. Your beneficiaries will receive a payout equal to your coverage amount if you pass while the policy is active.

    Your loved ones can use this payout for anything, including:

    • Mortgage payments
    • Covering other debts
    • Final expenses
    • Childcare costs
    • Tuition for your kids
    • Day-to-day expenses

    Term life insurance is the best type of policy if you’re looking to cover your family’s temporary responsibilities and financial obligations. When deciding on a term length, you can match your it to the length of your mortgage, so you know your mortgage is protected until your home is paid off.

    Plus, term policies are more affordable than many other types of life insurance. That means you’ll have coverage for just as long as you need it at a price you can afford, making it a great product to pair with your mortgage.

    Whole life insurance

    Whole life insurance provides coverage for your entire life, as long as you keep paying premiums. Like term life insurance, the death benefit can be used for anything your loved ones need. There is also a cash-value component to this type of policy.

    Because of the cash-value and lifelong coverage, though, whole life insurance can get expensive. Monthly premiums can be up to 7.5x more expensive than a comparable term policy, making it potentially difficult to fit into your (already stretched) budget.

    Mortgage life insurance

    Mortgage life insurance is a type of coverage designed to pay off your mortgage balance if you were to pass away.

    You can get this type of life insurance through banks, independent insurance companies, or through your mortgage lender. Your premiums are based on your age and mortgage amount and are added to your regular mortgage payments.

    With mortgage life insurance, the payout goes directly to your mortgage lender to cover the remaining balance on your mortgage. That means that your family or estate will own the property outright, no further payments required.

    Applying for life insurance with your mortgage

    Once you’ve got your mortgage sorted, it’s time to start shopping around for a life insurance policy.

    Premiums can vary widely depending on your age, health, coverage amount, and other factors.  To make sure you’re getting the right coverage for your needs, try using an online life insurance calculator.

    Prices will also depend on which insurer you go with, so it’s a good idea to shop around and get quotes from different companies to make sure you’re getting the best policy for the best price.

    When you’ve found a policy that fits your needs and budget, you’ll need to apply for coverage. Most insurers will ask you to complete an application that asks for basic information about your age, health, lifestyle habits, and family medical history. 

    With some insurance solutions, like PolicyMe, you can complete the entire application process online. From getting a quote to finalizing your policy, getting life insurance can be quick and simple with no unnecessary in-person meetings.

    Once you’ve got a policy in place, you can rest easy knowing your family is protected in the home you’ve made together.

    Find a better rate, and we’ll match it, beat it, or give you $500*.

    *Conditions Apply

    With nesto, it’s stress-free

    Final thoughts on getting life insurance with your mortgage

    Whichever policy you choose, having life insurance in place is a key step in protecting your mortgage. With a life insurance policy, you can rest assured that your loved ones will be able to stay in the home you’ve made together, no matter what tomorrow brings.

    Congratulations on your new home!

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