Life Insurance When You Get a Mortgage

There are several life milestones that typically trigger people to think about acquiring Life Insurance coverage. Getting married and having kids are the big ones. Data shows though, that purchasing a home is the other milestone that really gets the conversation going.

Most young Canadians are stretching themselves thin to purchase a home. They are taking on large amounts of debt, and counting on the fact that they will earn income throughout the 25 or 30 year duration of the mortgage. In the current economy, most people are purchasing homes in pairs, and both partners are expected to chip in significantly over the lifetime of the mortgage.

What we often fail to consider though is the risk that you assume when you take on such a large debt. There are many such risks, but for this discussion, we are focusing on the possibility that disaster strikes one of the payors of that mortgage. Simply put, if your partner is relying on you to make those payments monthly, then you should be paying close attention.

Each relationship and mortgage pair is different, but most sensible people want to make sure that their partner and their home is protected in the event of disaster. You signed up for a 25 year commitment, and you’re going to follow through on it no matter what.

Without insurance, your husband or wife could be in a terrible situation. Of course, losing you is unimaginable, and the trauma that that would cause is hard to describe. But now, imagine that while grieving you, your partner is suddenly forced to come up with twice their contribution.

To get into the numbers, on a $1 Million home with 20% down, a low mortgage rate (4%) is going to run you approximately $4,200 a month. Half of that means an individual is on the hook for $2,100 - already stretching most people thin. After all, a $100,000 annual salary yields just under $6,000 a month in take home.

Your spouse is bereaved, has their life turned upside down, and now suddenly they have to take on the other $2,100. That leaves that $100,000 per year individual to just under $1,800 to run the rest of their life. All this is before maintenance, utilities, childcare, car bills, etc. What’s more, when the term of your mortgage is up, that partner will almost certainly fail to qualify for the same mortgage amount. Either way, you run a major risk of losing the home.

Losing your home is emotionally distressing, demoralizing, and can feel dehumanizing. It also comes with major financial risks in that you could be forced to sell in a market downturn (See the current condo market). People lose contact with their communities and networks. Kids are forced to leave schools, find new friends, and start all over again. Are you willing to expose your loved ones to that kind of risk?

Most homeowners will consider this and purchase term life insurance to cover for this risk. Banks are happy to offer standard issue mortgage coverage to them, but there is a major caveat: the insurance the bank offers is typically much more expensive than that you would be able to procure privately. This is because they charge a rate of the average person with a mortgage. If you’re young and healthy, that profile is likely to be much less cost effective than the affordable term options available. It is great to have options, but make sure you are doing your due diligence to protect your hard-earned dollars.

As far as how much coverage to take out, that is a highly personal choice. Some people will cover the whole amount of the mortgage, so that their partner will never have to worry about paying it off again. On the other hand, some will opt for only their share. Sophisticated individuals will take the opportunity to work with a broker and do a full needs analysis.

Already have a mortgage and realizing that this would be prudent to investigate further? You can rectify the situation by getting insured today, better late than never. If you bought insurance from the bank when you got your mortgage, it’s even better to get in touch with a broker and make sure you aren’t paying more than you should be.

If this resonates and you want to learn more, you can always call Citron Insurance. Consults are free, quotes are free, advice is free, and there is 0 obligation. We’re here to help. Our priority is keeping your loved ones protected.

Subscribe to our newsletter

Never miss an article