A mortgage is a big loan, usually the largest debt you will have in your life, and we strongly encourage all our clients to think carefully about insurance options to help protect you and your loved ones against unforeseen hardships. The two insurance options discussed below each have strengths and weaknesses, which we have tried to outline below. Both products are completely optional and are not required to complete your mortgage.
ManuLife Mortgage Protection Plan (MPP)
This type of mortgage insurance is available on mortgages from non-bank lenders like Merix Financial, RMG Mortgages, CMLS, Mortgage Centre Centric Mortgage, etc.
Manulife’s Mortgage Protection Plan is a mortgage creditor insurance policy, which means if the policy is triggered the benefits will be paid out to your mortgage company on your behalf. The Life Insurance coverage will pay out the remaining mortgage balance in full (note that this is a declining amount over time), while the disability insurance will cover the mortgage payments until you are recovered.
The Mortgage Protection Plan (MPP) insurance can be accepted or waived by each applicant (please initial the apply or waive box in section 1 for each type of coverage). If you are applying, please fill in the payment information in section 1, check to have an advisor call, and then fill in section 2. Whether you apply or waive, please sign and date in section 3. Section 4 (medical questions) needs to be filled in and returned only if you are applying for either life or disability coverage.
There are a few things to note about this particular mortgage insurance product that make this option good for certain circumstances:
- The mortgage insurance can begin the moment you apply, which is important for purchasers because once you remove your ‘subject to’ clauses you are legally committed to purchasing the property. Many insurance products can take months to set up, but this can mean you don’t have coverage in place during the period between your subject removal and the eventual closing of your purchase and leaves you vulnerable. With MPP your life and disability insurance covers you before you even take possession of the property, so if anything happens your mortgage payments will for sure be covered.
- Completely refundable within 60 days, so you can always cancel and get your money refunded. This means that you can essentially get coverage for the first 2 months (covering that period before you take possession of the home) for free.
- Not tied to a particular lender – MPP is an independent insurance company, so you are free to switch between lenders over time without needing to re-qualify for mortgage insurance each time. This is really important if you plan on having mortgage insurance over the next 25 years, because staying with the same insurance company means your payments remain the same. If you change insurance companies every time you change lenders, you would be qualifying each time as an older applicant and your premiums would increase.
Better Mortgage Insurance
This is a quote for Term Life Insurance, Disability Insurance and Critical Illness insurance offered through our partnership with Assumption Life.
Term insurance is different from the MPP mortgage insurance above, because it provides a guaranteed payout amount that will be paid to your designated beneficiary to use as they wish, rather than a guarantee to pay out the current mortgage balance. This means that if you purchase a 25 year term insurance policy for $400,000 in coverage, it will pay out $400,000 whether it’s triggered in year 2 or year 24.
This can be contrasted against a Mortgage Life Insurance policy where the mortgage loan starts at $400,000. If the life insurance is triggered in year 2 the loan balance will be in the range of $389,000 to $378,000 so the benefit (debt paid by the insurance) will be substantial. However, if the policy is triggered in year 24 the mortgage balance will be almost completely paid back already and the benefit will be less than $45,000.
With a $400,000 term insurance policy, the coverage would be enough to guarantee that the surviving beneficiary could choose to pay out the mortgage in full, and likely have money left over to help with other things.
Term insurance also offers additional flexibility in that the coverage amount can be higher or lower than the mortgage amount. If you want to guarantee that your surviving beneficiary will have enough to pay out the mortgage and be able to send your children to university, the coverage amount can be adjusted accordingly.
The Better Mortgage Insurance quote also includes optional Disability coverage and optional Critial Illness insurance coverage. Disability insurance ensures your monthly debt payments will be covered during a period of time where you are injured and unable to work, while Critical Illness insurance pays out an amount of money if you are diagnosed with one of 16 covered illnesses. This gives you a financial cushion during your time of illness to use as you wish (extra medical expenses or optional treatments, to pay for extra needed household help or childcare, etc).