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I am a single, 70-year-old with a reasonable mortgage of $115,000. I have no family and no dependants. I find that the life insurance on my mortgage is too expensive. Do I need mortgage life insurance anyway? What for?
—Katerina
What is mortgage life insurance?
Good question, Katerina. Many borrowers don’t realize they are paying for life or disability coverage through their mortgage. Check your mortgage details in online banking or on your latest mortgage statement and you will likely see a notation indicating whether your mortgage is protected, insured, or not insured.
Mortgage life insurance, often called mortgage protection insurance, typically bundles life insurance and disability insurance. The life portion pays off the outstanding mortgage balance if you die, while the disability portion may cover regular mortgage payments if you become unable to work.
In Canada, banks are generally limited to selling life and disability insurance tied to credit products. This regulatory approach aims to keep the insurance market competitive and to prevent tied selling, where credit is conditioned on purchasing insurance from the lender.
When you completed your mortgage paperwork, the banker or mortgage advisor likely asked you to initial a form indicating whether you wanted mortgage insurance. It’s easy to miss or approve this in the flow of closing a loan. In some cases people opt out, yet later discover their mortgage is still “protected” — administrative or sales practices can lead to that outcome.
Mortgage life insurance tends to be more expensive than comparable group or individual policies bought outside the mortgage, so your impression that it’s costly is common and often correct.
When to consider mortgage life insurance
Mortgage life insurance can make sense in specific circumstances. For instance, if you have significant health issues that make it hard to qualify for standard life or disability insurance, a mortgage-linked policy may be one of the few available options.
However, at age 70 with no family and no named beneficiaries, the value of paying high premiums for mortgage life insurance is questionable. Insurance is primarily a risk management tool: you buy coverage to protect against a financial loss that would otherwise harm you or your loved ones. If your death or disability does not create financial hardship for others, the policy’s utility is limited.
If you pass away without beneficiaries, a mortgage life policy would simply increase the size of your estate, potentially benefiting friends or charities. While leaving a larger estate may be a goal for some, paying elevated premiums late in life for mortgage protection is rarely cost-effective for someone in your situation.
Mortgage life insurance is often profitable for lenders and for the advisors who sell it. Sales staff can receive bonuses or commissions for placing these policies, which creates an incentive to recommend them even when the product is not a perfect fit for the borrower.
Most sales-oriented mortgage advisors are not fiduciaries, meaning they are not legally required to put your interests ahead of their own. That structural reality can lead to recommendations that favour the advisor or the institution, rather than the client. While such sales practices may be legal, many people view them as ethically questionable—especially when an elderly, single borrower with no dependants is persuaded to buy expensive coverage of little personal benefit.
Better oversight and clearer standards could reduce these mismatches between product and customer. Consumers who spot such situations and speak up can help prompt industry and regulatory changes, and may encourage advisors to take a more genuinely advisory role.
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PLEASE NOTE: Mortgage life insurance may be more expensive than other available options, but do not cancel any coverage immediately after reading this. First, determine—possibly with professional help—whether you actually need insurance and, if so, how much. If you decide to cancel your mortgage-linked policy, make sure you already have an appropriate replacement policy in place if you still need coverage.
Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto. He does not sell any financial products.
More about insurance:
- 8 critical illness insurance myths
- 7 disability insurance myths to stop believing
- How to choose the right insurance: Mortgage, life or disability?
- How a young family can make the best use of an insurance payout