Life insurance for your mortgage? Here's why CAA's Better Mortgage Insurance makes sense 

Are you a condo-loving urbanite? Or dedicated to a three-bedrooms-double-garage suburban lifestyle? Whatever your home looks like, it’s worth protecting. But while most Canadians invest in home insurance, there are plenty of questions about mortgage insurance, like “should I get it” and “is there a better way to protect my family?”  

We asked Jeff Walker, President and CEO of CAA North & East Ontario, a few questions to get to the bottom line.

Around 66.5% of Canadians own their own home. Let's say they're looking at protecting that investment with mortgage insurance. Walk us through the points about whether or not to get mortgage insurance.

Let me start by describing traditional bank mortgage insurance. If you are insured through your bank or lender, they own your policy and that means they are your beneficiary. In other words, with traditional bank mortgage insurance, the bank self-insures. So, they choose themself as the beneficiary and payoff the existing mortgage.

Then there's what we call CAA Better Mortgage Insurance. With Better Mortgage Insurance the full amount of the policy is paid to the beneficiaries you choose, and they get to decide what happens with the money. And that could mean different things for different people

Say you have a $350,000 mortgage you want to insure. What's the difference between how a lender insurance and Better Mortgage Insurance would work?

There's a really big difference and it's not one most people consider. A lender or bank mortgage insurance policy is for the total mortgage. As you pay down your mortgage, the insured amount reduces, as well. So, if you have $100,000 left on a $350,000 mortgage, that's all that will be paid out. But your overall premiums could possibly even go up. 

Better Mortgage Insurance is life insurance. In other words, the insured amount will always stay the same. The premiums will always stay the same. Should something happen to you, your beneficiaries get the full amount.

It makes sense that your family or beneficiaries benefit. What about the cost of the policy itself?

In a lot of cases, you could save up to 45% on premiums. In fact, you could pay as little as $25.45 a month with Better Mortgage Insurance, compared to $49 a month with lender mortgage insurance. For example, if you're a 32-year-old non-smoking female hoping to insure a $350,000 mortgage on a 25-year term, you'd pay that $25.56 monthly premium. Mortgage insurance with a bank would almost double that monthly premium.

You describe Better Mortgage Insurance as life insurance for your mortgage'. Why is that?

Well, for one thing, it’s not really mortgage insurance. It’s life insurance for the amount of your mortgage should anything happen to you. For example, you’re insuring the amount of your mortgage pay out, so if anything should happen, your beneficiaries – not the bank – receive the claim amount. If you’re mortgage has been reduced over time, the left-over amount can be used for other things to alleviate your loved ones’ burden.  

And because it’s life insurance, the premiums and the claim amount remain constant. It’s also underwritten at the time of the application. With mortgage insurance, it’s underwritten at the time of the claim – and there could be exclusions that affect that payout that come as a surprise. 

What about if you move or downsize. How do mortgage insurance and Better Mortgage Insurance differ?

 That’s easy – like all life insurance, Better Mortgage Insurance is portable. You take it with you whether you move or change banks. In fact, once you reach the end of your term, it will either automatically renew or you can convert it to a permanent life insurance policy. With mortgage insurance, you need to reapply if you change lenders and all those premiums stay with your former institution. 

What about if your circumstances change. Maybe you get a divorce, but you still have this Better Mortgage Insurance? What happens then?