Your lender may offer mortgage life insurance when you sign your mortgage. It is optional: you don’t need it to be approved, and the lender cannot insist that you buy it. You must give your express consent to buy it. It sounds responsible (if you die, the mortgage gets paid off), and it is sold at a moment of high stress and little comparison shopping. This page compares it with buying your own term policy. It sits within the life insurance section of the site.
Mortgage life insurance is not the same as mortgage default insurance. Default insurance (from CMHC or a private insurer) protects the lender if you stop paying and is required when your down payment is under 20%; see mortgage default insurance explained. Mortgage life insurance is optional and pays the lender if you die.
Side-by-side: mortgage insurance vs term life
| Feature | Bank mortgage insurance | Individual term life insurance |
|---|---|---|
| Provider | Your bank/lender | Independent insurer |
| Death benefit | Declines with mortgage balance | Level (fixed, never decreases) |
| Beneficiary | The lender (mortgage is paid off) | Whoever you name (they decide what to do) |
| Premium | Based on your age and mortgage amount when you apply; generally stays the same as the balance falls | Level for the term |
| Portability | Ends with that mortgage if you switch lenders | Unrelated to your lender |
| When eligibility is checked | Short questions at signing; details may only be reviewed at claim time | Full underwriting at application (before first premium) |
| Additional coverage for other needs | No: only covers the mortgage balance | Payout can cover anything |
| Value for money | Coverage shrinks while the premium doesn’t | Term or permanent insurance may provide better value (FCAC) |
| Pre-existing conditions | Usually not covered | Assessed at application |
| Convertibility | Not a feature of mortgage life coverage | Many term policies can be converted to permanent insurance |
| Ease of sign-up | Very easy (usually offered at signing) | Application plus health questions |
| Speed | Can start at closing | From an instant decision at some online insurers to several weeks with full underwriting |
The declining benefit
With bank coverage, the amount insured tracks your outstanding balance. Your coverage goes down while your premium generally stays the same, so each year you pay the same for less protection. A level term policy pays the same amount whether death occurs in year 1 or year 24, and your beneficiary decides how to use it.
Comparing the cost
A fair comparison sets both quotes side by side for the same starting amount and length: the bank’s premium (fixed at your age and balance when you apply) against a level term policy for the mortgage’s remaining amortization. The bank premium buys a benefit that shrinks every year to zero; the term premium buys the full amount for the whole term. The Financial Consumer Agency of Canada notes that term or permanent life insurance may give better value than mortgage life insurance for that reason. What term coverage costs at different ages and amounts is covered in life insurance costs by age.
Sizing the individual policy to the mortgage alone can undershoot. Many households also count income replacement, other debts, education and funeral costs, which is how the DIME method for sizing coverage arrives at a figure well above the mortgage balance.
The claim-time underwriting problem
This is the issue that regulators have flagged with bank-sold mortgage life insurance.
| Underwriting timing | What happens |
|---|---|
| At application (individual term) | You complete medical questions, possibly a medical exam. Once the policy is issued and the two-year contestability period has passed, the insurer generally cannot contest it over the application answers, except for fraud. |
| At claim time (bank mortgage insurance) | You answer short eligibility or health questions when you sign up, and the answers may only be checked in detail when your family files a claim. If the review finds a condition that made you ineligible or wasn’t disclosed, the claim can be denied. |
The risk: premiums are paid for years, the family files a claim, the insurer reviews medical records and finds a condition that the simplified application excluded or that wasn’t disclosed, and the claim is denied. The family believed the mortgage was protected and still owes the balance. Insurance regulators (CCIR and CISRO) flagged this post-claim underwriting concern in their 2008 report on incidental selling of insurance; the industry’s position is that applications are underwritten at the time they are made. Provincial insurance law does limit how long the coverage can be challenged: in B.C., for example, a misstatement in evidence of insurability the insurer specifically asked for can void creditor group coverage only in its first two years, although exclusions written into the certificate, such as for pre-existing conditions, still apply.
The portability problem illustrated
Illustrative scenario with bank coverage:
- You take out a $600,000 mortgage with Bank A and sign up for its mortgage life insurance.
- Three years later you switch to Bank B at renewal for a better rate, and the Bank A coverage ends with the old mortgage.
- You apply for Bank B’s mortgage insurance. You are now 38 and have been treated for a health condition in the meantime.
- Bank B’s insurer declines the application, or excludes the condition.
Three years into a 25-year amortization you still owe most of the original $600,000, and you have no coverage.
Same scenario with individual term life:
- You buy a $600,000, 25-year term policy when you take out the mortgage.
- You renew with Bank B. The policy is unaffected, and you still have the full $600,000 of coverage.
When bank mortgage insurance can make sense
| Situation | Rationale |
|---|---|
| Declined for individual life insurance (health) | Simplified eligibility questions may accept some applicants that full underwriting would not (though pre-existing conditions are usually excluded) |
| Need coverage the same day at closing | Individual underwriting can take days to weeks; bank insurance can start at signing |
| Small remaining balance | The dollar cost difference is small |
| Short remaining need | You plan to sell or pay off the mortgage within a few years, so underwriting a new individual policy may not be worth it |
| Supplement to an existing policy | You already hold individual term life and want a small additional layer |
For people who have been declined, no-medical individual policies are another route worth comparing; Canada Protection Plan, a Foresters brand, is built around that market. For people in standard health taking on a new mortgage, individual term life usually offers level coverage, portability and underwriting certainty, and often better value.
Where to get individual term life insurance
| Option | Speed | Price | Best for |
|---|---|---|---|
| Online insurer or agency | Instant decision for many applicants | One insurer’s rates | Healthy applicants, standard term life |
| Online broker | Depends on the insurer chosen | Comparison across many insurers | Any health history, larger coverage |
| Traditional broker or advisor | Depends on the insurer chosen | Insurer-set premiums | Complex needs, financial planning |
PolicyMe is an example of an online agency selling one insurer’s policies and PolicyAdvisor of an online broker. For the length of the term itself, choosing a term length walks through matching the term to the mortgage and your dependants.
Switching from bank coverage to term life
| Step | Action |
|---|---|
| 1 | Get term life quotes (a broker can compare several insurers) |
| 2 | Apply and complete medical underwriting (questionnaire, possibly an exam) |
| 3 | Wait until the new policy is approved and in force |
| 4 | Contact your lender to remove mortgage life insurance from your payment |
Cancelling existing coverage before the new policy is in force risks a gap: if your health has changed, you could be left uninsured.
Mortgage critical illness and disability insurance
Lenders also offer mortgage disability and critical illness insurance, which may make your mortgage payments to the lender if you can’t work because of a serious illness or injury. It usually combines several insurance products and comes with a list of covered and excluded conditions:
| Coverage | Bank version | Individual version |
|---|---|---|
| Critical illness | Pays toward the mortgage on a covered diagnosis | Lump sum you can use for anything |
| Disability | Covers mortgage payments, subject to the plan’s limits | Replaces a share of income, usable for any expense |
| Life | Declining coverage, tied to the mortgage | Level benefit, portable |
Individual critical illness insurance and disability insurance are underwritten when you apply and are not tied to your lender, like individual term life.
Related pages
- Best Life Insurance Companies Canada
- What Happens to Your Mortgage When You Die: estate implications for mortgage holders
- Monthly Carrying Costs of Homeownership
- Breaking Your Mortgage Early: penalties and considerations if your situation changes
Sources
The figures and rules on this page come from these sources, last checked against them on September 25, 2026. How we check facts.
- BC Laws: Insurance Act
- fcaa.gov.sk.ca: June xx, 2006
- Financial Consumer Agency of Canada: How much you need for a down payment