Mortgage life insurance — term vs bank
Bank-issued mortgage life insurance ('creditor insurance') costs more and pays the bank, not your family. A T20/T25 term policy with the same coverage pays out to a named beneficiary.
Your scenario
Result
Illustrative rates. Get real quotes from 2-3 carriers (PolicyAdvisor, Manulife direct, etc.) for your specific health profile.
Bank mortgage insurance vs term life — what your bank won't volunteer
When you close a mortgage in Canada, your bank will offer “mortgage life insurance” — also called creditor insurance. It's convenient, fast, and almost always the wrong choice. A regular T20 or T25 term life policy with the same coverage typically costs 30–60% less and gives your family a real lump sum, not a paid-off mortgage that goes to the bank.
Five differences that matter
- Who gets paid: bank policy pays the bank (mortgage gets cleared); term policy pays your named beneficiary (family decides what to do)
- Declining coverage: bank policy coverage drops as your mortgage balance drops, but premiums often stay flat; term policy keeps the original face amount the whole period
- Underwriting timing: bank policies are typically post-claim underwritten — they ask only a few health questions at signup but investigate at the time of claim, and a high percentage of claims get denied; term policies are fully underwritten upfront with a paramedical exam, so claims rarely get disputed
- Portability: switch banks or renew with another lender, bank policy disappears; term policy stays with you regardless of what your mortgage does
- Cost: term is typically 30–60% cheaper at the same coverage
Worked example — 38-year-old non-smoker, $540k coverage, 25 years
- Bank mortgage insurance: ~$120/month × 300 months = ~$36,000 lifetime
- T25 term life policy: ~$75/month × 300 months = ~$22,500 lifetime
- Savings: ~$13,500 over the period, plus your beneficiary gets the full $540k (not a paid-off mortgage)
When bank mortgage insurance is the right choice
- You have health conditions that would make traditional underwriting expensive or impossible
- You need coverage tomorrow and a paramedical exam will take 4–6 weeks
- The bank is using it as a rate concession (rare — usually they upsell you AT the rate)
How much coverage do you actually need?
A common rule: 10× annual income for the primary earner, or enough to clear all debts + 12–24 months of household expenses + child education costs. Don't buy “just enough to cover the mortgage” — that ignores the rest of household needs.
How to shop
- Get 3 quotes — independent broker (PolicyMe, PolicyAdvisor), direct from a carrier (Canada Life, Manulife), and an in-person broker
- Compare T20 vs T25 vs T30 — longer term costs more but locks in rates while you're young + healthy
- Look for “convertible” term — lets you convert to permanent insurance without re-qualifying medically later
- Disclose everything honestly — denied claims for non-disclosure are devastating