By Pankaj Babbar, licensed advisor at SAI Insurances · 3 min read
1-minute read
The short answer
- Lender mortgage insurance (offered when you sign the mortgage) pays the bank the remaining balance if you die.
- Personal term life insurance pays your family, who decide how to use the money — the mortgage, bills, or anything else.
- The lender's benefit usually shrinks as you pay the mortgage down; a term policy's amount generally stays level.
- A personal policy usually stays with you if you switch lenders or move; lender coverage often ends with that mortgage.
- Neither is the same as CMHC insurance, which protects the lender if you stop paying — not your family.
Detailed guide · 2 min read
The question at the signing table
When you sign a mortgage, the lender will often offer insurance that pays off the loan if you die (and sometimes if you become critically ill or disabled). It's convenient — one signature and it's added to the payment. But it isn't the only way to protect your home, and it works quite differently from a personal policy.
First, a quick clarification about CMHC
If you made a smaller down payment, you may also have mortgage default insurance (from CMHC or a private insurer). That protects the lender if you stop making payments. It does nothing for your family — it's a separate thing from the insurance discussed here.
Side by side
| Lender mortgage insurance | Personal term life | |
|---|---|---|
| Who is paid | The lender | Your chosen beneficiaries |
| Benefit over time | Usually falls with the balance | Generally stays level |
| Change lenders | Coverage often ends | Policy stays with you |
| Health review | Sometimes checked at claim time | Assessed when you apply |
| Use of money | Pays off the mortgage only | Family decides |
Why the "shrinking benefit" matters
With lender coverage, your premium often stays the same while the amount the insurance would pay goes down every year as the mortgage is paid off. A level term policy keeps paying the same amount for its term, so as the mortgage shrinks, the leftover money can help your family with everything else.
When the health questions are asked
Some lender products ask only a few health questions when you sign and look at your medical history more closely if a claim is made. A personal policy is underwritten when you apply, so you know you're approved before you rely on it. Ask about this for any product you're considering.
Which one fits?
Lender coverage can make sense for convenience or if a personal policy isn't available to you. Many families prefer a personal term policy sized for the mortgage and their other needs — see how much life insurance do I need? and term vs. whole life.
How we help
We offer mortgage protection and personal life insurance, so we can lay both options side by side for your home and your budget — in English, Hindi or Punjabi. Arranging a new mortgage too? See mortgages.
This article is general information, not insurance advice. Features, pricing, underwriting and portability vary by lender, insurer and policy. Your licensed advisor will compare the specific options available to you.