Mortgage insurance

What it means

Mortgage insurance (sometimes called mortgage life or creditor insurance) pays out toward your outstanding mortgage balance if you die, and sometimes if you become disabled, depending on the policy. It's typically offered by the lender at the time of a mortgage. This is a different product from mortgage default insurance (like CMHC insurance), which protects the lender, not the borrower, on a low-down-payment mortgage.

Why it matters

It's convenient to set up, but it's worth comparing against a personal term life insurance policy sized to the mortgage — the two solve a similar problem in different ways, with different costs, flexibility, and underwriting.

Common misunderstandings

• •The payout typically goes directly to the lender to reduce the balance, not to your beneficiary as cash — a personal life insurance policy offers more flexibility about how the payout is used.
• •Premiums are often based on the group as a whole rather than fully individually underwritten, which can mean a healthy applicant is not necessarily getting the lowest available rate.
• •Coverage typically declines as the mortgage balance declines, but premiums often don't decrease at the same rate.

Where you'll see it

Offered at mortgage closing, and worth comparing against term life insurance before accepting by default.