If you’re buying a home in Canada, you’ve probably been offered “mortgage protection insurance” by your lender. But bank mortgage insurance and personal life insurance are NOT the same — and choosing the wrong one can cost you thousands.
This guide explains the difference between bank-provided mortgage insurance and using a personal term life policy for mortgage protection. Once you understand how each works, the better choice becomes very clear.
What Is Mortgage Protection Insurance?
Mortgage Protection Insurance (MPI) is life insurance designed to pay off your mortgage if you pass away. It ensures your family doesn’t lose the home and can continue living there without financial stress.
There are two main types in Canada:
- Bank/Lender Mortgage Insurance
- Personal Term Life Insurance used as mortgage protection
They sound similar, but they work VERY differently.
Bank Mortgage Insurance (What the Lenders Sell You)
Banks like to offer life insurance at the moment you sign your mortgage paperwork. It feels convenient — but it comes with major drawbacks.
Problems with Bank Mortgage Insurance
- The bank is the beneficiary, not your family
- Coverage decreases as your mortgage balance goes down
- Premiums stay the same even though coverage shrinks
- You cannot take it with you if you switch lenders
- Medical underwriting happens after you die (post-claim underwriting)
- Claims are more likely to be denied
This type of insurance protects the bank, not the homeowner.
Personal Term Life Insurance (The Better Option)
Using a Term Life Insurance policy for mortgage protection gives YOU and your family the control.
Benefits of Term Life for Mortgage Protection
- Your family gets the payout, not the bank
- Coverage amount stays level and guaranteed
- Premiums never increase during the term
- Policy is portable — switch banks freely
- Choose your own coverage amount
- Higher approval transparency
- Often much cheaper than bank insurance
This is why most financial advisors recommend term life to protect a mortgage, not lender insurance.
Which Option Costs Less?
In almost every comparison, personal term life is cheaper than bank insurance for the same borrower.
For example:
- A healthy 35-year-old may pay $25–35/month for $500,000 in term coverage.
- Bank insurance for the same mortgage could cost $45–60/month — with shrinking coverage.
Over 20–30 years, the savings are significant.
Coverage That Actually Protects Your Family
With term life:
- Your partner decides how the money is used
- They can pay the mortgage, cover childcare, or pay other expenses
- Your family receives a tax-free lump sum, giving them maximum flexibility
With bank insurance:
- The payout goes directly to the lender
- Your family receives no money
- You lose control of your financial outcome
When to Choose Mortgage Protection with Term Life
Term life is ideal if you:
- Just bought a home
- Have a long mortgage amortization
- Have children or dependents
- Want affordable monthly premiums
- Want your family, not the bank, to receive the payout
What Term Length Should Homeowners Choose?
Most Canadians choose:
- 20-year term → for starter homes
- 25-year term → to match amortization
- 30-year term → for long-term protection and stability
Matching your mortgage is the simplest approach.
Can Newcomers and Young Families Qualify?
Yes — most applicants qualify easily.
And if you prefer no medical testing, simplified or no-medical term life options are available.
Bottom Line
Mortgage protection should protect your home AND your family — not your bank.
A personal term life policy gives you more coverage, more flexibility, and more financial security at a lower cost.
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https://www.life-simple.ca/life-insurance-for-first-time-homebuyers