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Patrik Shore updated on 11 March 2024
Summary
In Canada, there are multiple types of home insurance products, from straight home insurance that protects your house to government-mandated mortgage default insurance for homebuyers purchasing a property with less than a 20% down payment.
There's also home mortgage insurance that covers your mortgage debt if you cannot pay it.With all these home insurance products, there is little wonder that many Canadians are confused when getting coverage. Or worse. Avoid coverage altogether.
This article covers everything you need to know about home mortgage insurance: insurance that covers your mortgage payments if you cannot pay them yourself. Find out what it costs, its pros and cons, the best plans, and also get free quotes right here.
Home Mortgage Insurance: 4 Key Takeaways
- Home mortgage insurance covers your financial mortgage obligations after an insurable event
- It is also known as mortgage protection insurance or creditor insurance
- The insurance benefit pays the mortgage lender directly when a claim is successfully made
- It is completely voluntary and can be cancelled at any time
What is home mortgage insurance?
Home mortgage insurance is a specific type of creditor insurance that will cover a policyholder’s mortgage payments when they cannot be met by the insured. Depending on the type of home mortgage insurance, the benefit may pay the mortgage in full as a lump sum, or cover monthly mortgage payments for a specific period.
Many insurance providers and financial institutions offer home mortgage insurance to their clients when they take out a mortgage. The most common home mortgage protection is mortgage life insurance, but others also exist. Most commonly, you will find:
- Mortgage life insurance
- Mortgage critical illness insurance
- Mortgage disability insurance
- Job loss mortgage insurance
The reason for home mortgage insurance is simple: it protects the policyholder and their dependents financially while ensuring that they do not lose their homes in the event of death, critical illness, disability, or job loss.
Expert advice
Where an insurance provider may not offer standalone mortgage coverage, such as job loss insurance, they will likely offer it as part of a combined insurance policy or as an optional add-on. For example, Scotiabank’s Scotia Mortgage Protection offers combined disability and job loss cover as an optional add-on to mortgage life insurance.
If you want to explore the best mortgage insurance options to protect your home and payments, you can do it right here. Use our free tool below to compare the best mortgage insurance quotes based on your unique needs.
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How does home mortgage insurance work?
The exact way a home mortgage insurance policy works depends entirely on the specific product bought. All of the options will, however, cover an individual’s mortgage obligations if they cannot be met by the insured themselves due to an insurable event.
When an insurable event occurs and a successful claim is made, the insurance provider will pay the mortgage lender directly and settle any financial obligations up to the specified insurance limits. The mortgage payments and limits will be determined by the type of home mortgage insurance as covered below.
Mortgage life insurance
Mortgage life insurance will protect an insured’s dependent’s financially if they pass away from either an illness or an accident. It does this by paying a lump sum payment towards the insured and borrower’s mortgage, often clearing the whole debt and leaving the family with a fully paid-for house.
Of course, the total amount of the mortgage that the home mortgage life insurance benefit will cover is dependent on the actual amount the insured is insured for. But, likely, the mortgage provider who in all probability also sold the borrower the insurance, will ensure that it covers the full mortgage amount.
One or multiple individuals can all be named insured on the mortgage life insurance policy, meaning that multiple people are covered. In this instance, each insured will also have to be listed on the mortgage loan itself and a set premium will be paid per person.
Mortgage critical illness insurance
This type of home mortgage insurance is similar to mortgage life insurance in the sense that it will pay a lump sum towards the insured’s mortgage if they are diagnosed with a critical illness. A critical illness can be anything from a heart attack to a stroke or cancer and all covered conditions will be specified within the insurance policy itself. When a diagnosis is given, the insurance provider will pay the mortgage lender directly with the benefit.
Mortgage critical illness insurance is a great way for families to protect themselves financially because if/when they are struck by a serious illness, the family can focus all their attention on recovery and not have to worry about the most common and most expensive financial obligation: mortgage payments.
Mortgage disability insurance
In contrast to life and critical illness, mortgage disability insurance is a product that will pay the policyholder’s monthly mortgage payments instead of the full mortgage outright. The insurance benefits will only kick in if the disability, caused by illness, disease or injury, forces the insured out of work for a longer period.
If a claim is successful, the insured will likely face an elimination period before their mortgage payments are covered. This elimination period, or waiting period, is a pre-specified amount of time that has to lapse between being unable to work to the first mortgage payment being covered.
Disability mortgage benefits have an upper-term limit, as well. At 24 or 48 months, this means that the insurance will only pay benefits for a certain amount of time before ceasing. Usually, this will be enough for the insured to get back on their feet and into work.
Job loss mortgage insurance
Job loss mortgage insurance will pay an insured’s monthly mortgage payments if they are made redundant from their place of work through no fault of their own. This type of cover has the same limitations as disability mortgage insurance but is an excellent financial tool for individuals working in industries that have a high turnover of staff: technology, retail, and hospitality.
If you think that home mortgage insurance is something that you need to protect your financial well-being, you can compare some of the best mortgage insurance providers in Canada using HelloSafe’s free comparison tool below.
Compare mortgage life insurance in secondsGet your mortgage life insurance quote
What does home mortgage insurance cost?
Home mortgage insurance costs are very transparent and vary depending on the specific type of coverage bought. For example, mortgage life insurance won’t cost the same as disability mortgage insurance or job loss coverage.
Furthermore, home mortgage insurance premiums are determined by age, the amount of a borrower’s outstanding mortgage, and/or the monthly mortgage payment. The good thing about home mortgage insurance costs is that they don’t increase with your age. The premium may decrease as the amount of an insured’s mortgage decreases.
The table below shows Scotiabank’s home mortgage insurance life protection premium rates. These premium rates are then applied to every $1,000 of the outstanding mortgage balance on the date of the insurance application date, depending on the applicant’s age.
| Age | Scotiabank Mortgage Life Premium Rates |
|---|---|
| 18-30 | $0.14 |
| 31-35 | $0.18 |
| 36-40 | $0.25 |
| 41-45 | $0.36 |
| 46-50 | $0.47 |
| 51-55 | $0.58 |
| 56-60 | $0.77 |
| 61-65 | $1.12 |
| 66-69 | $1.57 |
For example
The home mortgage life insurance cost for a 34-year-old with an outstanding mortgage of $250,000 at the time of application, would have a Scotiabank mortgage insurance premium rate of $0.18 per $1,000 of mortgage balance. The home mortgage insurance premium would, therefore, be $45 per month calculated as (($250,000/$1,000) x $0.18).
Who are the best home mortgage insurance providers in Canada?
While it is nearly impossible to determine the best home mortgage insurance provider in Canada, numerous companies stand out from the crowd. The ones that do are the insurers headquartered in Canada, focus on customer service and prioritize innovation.
- Scotiabank: Offers home mortgage protection insurance under the name Scotia Mortgage Protection. This policy includes life mortgage insurance and can include critical illness, disability, and job loss mortgage cover
- Manulife: Manulife One is a comprehensive home mortgage insurance policy, with the possibility of receiving coverage for life, critical illness, disability, and job loss under one plan
- Sun Life: Sun Life has not developed a specific home mortgage insurance product, but provides similar coverage using term life insurance with a disability add-on
- Bank of Montreal (BMO): Mortgage Protection Insurance with BMO is convenient and flexible, including coverage for all four types of home mortgage insurance
- iA Financial Group: The company offers home mortgage protection under its universal loan insurance policy, which covers mortgages in addition to lines of credit, rent personal loans, and more
It can be difficult to compare multiple home mortgage insurance plans at once; but, HelloSafe’s mortgage insurance comparison tool below simplifies the process. It's free to use and completely online.
Compare mortgage life insurance in secondsGet your mortgage life insurance quote
What is the difference between home insurance, mortgage default insurance, and home mortgage insurance?
Home insurance, mortgage default insurance, and home mortgage insurance all sound the same but offer vastly different types of insurance coverage. And, it is important not to mistake one form of cover for another.
Home insurance protects your physical property from an unexpected event; like flooding or a fire. The benefit will protect you financially by covering renovation costs and temporary housing, depending on your provider and plan.
Mortgage default insurance, also known as mortgage loan insurance, is a government-mandated insurance policy that every homebuyer must have if they buy a property with less than 20% down. Mortgage loan insurance protects the mortgage lender in case the borrower defaults on their home loan.
Home mortgage insurance is creditor insurance, where the payable benefit will cover the policyholder’s mortgage obligations when they cannot pay themselves. These insurable events are death, critical illness, disability or job loss.
The table below further highlights the differences between these three types of home insurance.
| Consideration | Home Mortgage Insurance | Home Insurance | Mortgage Default Insurance |
|---|---|---|---|
| What is covered? | The borrower’s financial mortgage obligations | The physical property | The lender’s investment |
| Who buys the coverage? | Homeowner | Homeowner | Mortgage lender but paid for by the borrower |
| Is the insurance voluntary? | Yes | Yes | No, if the borrower is buying property with less than 20% down |
| Do the premiums fluctuate between providers? | Yes | Yes | No |
| Who claims on the policy? | Homeowner | Homeowner | Mortgage lender |
Am I eligible for home mortgage insurance?
Home mortgage insurance products are only applicable to those who have a mortgage. Usually, the policy itself will be sold by the mortgage lender at the time the mortgage is being negotiated; but, the coverage can also be bought independently at a later date.
Just like with any insurance, eligibility differs between insurance providers. However, a few basic home mortgage insurance eligibility requirements will nearly always remain constant in Canada. These include:
- Being a Canadian resident
- Aged between 18 and 64
- Be a borrower, co-borrower, or guarantor of a mortgage loan that is in good standing
Furthermore, if you want to apply for mortgage disability insurance and/or job loss mortgage cover, you will also likely have to meet the following requirements.
- Be a permanent employee, self-employed or actively working seasonal worker and having worked a minimum of 180 days consecutively
- Work an ongoing minimum of 20 hours every week, not counted as an average
- Be registered and eligible to receive Canada Employment Insurance Benefits
Can I cancel my home mortgage insurance?
Yes, you can cancel your home mortgage insurance whenever you wish. Unlike mortgage default insurance, home mortgage insurance is a private policy owned by the policyholder and completely voluntary.
As such, if the mortgage protection insurance becomes too expensive, doesn’t cover your needs, or is unsuitable in any way, you can simply contact your provider and cancel the policy. All insurance providers will also have a ‘free-look’ period, where if you cancel the policy within 30 days of inception you can get a full refund on your first month’s premium.
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Patrik ShoreEx: web developer
Patrik Shore has nearly a decade worth of experience in the financial industry and has been writing for HelloSafe over the past year. Having started his career investigating financial crime to moving on to financial planning, Patrik has a deep understanding of all things personal finance.
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