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Homeownership is a significant investment and a source of pride for many. However, with homeownership comes the responsibility of paying a mortgage every month. It can be daunting, especially if unexpected circumstances like a critical illness arise.
That’s where mortgage critical illness insurance comes in. This type of insurance coverage helps homeowners pay off or reduce their mortgage balance if they are diagnosed with a critical illness, such as cancer, heart attack, or stroke. It can provide financial security and peace of mind during a difficult time.
While mortgage critical illness insurance is a practical option for homeowners, weighing the benefits against its limitations is essential. Personal critical illness insurance, for instance, can provide more comprehensive coverage for various expenses related to a critical illness.
In this article, we’ll explore mortgage critical illness insurance, its benefits, and how it compares to personal critical illness insurance. By the end, you’ll better understand which option is best for your needs.
What Is Mortgage Critical Illness Insurance Coverage?
Your mortgage lender offers mortgage critical illness insurance to help protect homeowners if they are diagnosed with severe illnesses like life-threatening cancer, heart attack, and stroke.
One of the leading financial concerns of suffering a critical illness is the inability to make mortgage payments. Mortgage critical illness insurance addresses this concern by paying off or reducing your mortgage balance if you’re diagnosed with a covered critical illness.
This eliminates your most significant monthly bill, freeing up money you can use toward your recovery, like prescription drugs, medical equipment, caregiver costs, and modifications to your home.
Can you get critical illness insurance on your mortgage?
You can get critical illness mortgage insurance by answering a few health-related questions during the mortgage loan approval process. If you respond ‘yes’ to any health questions, the insurance company may contact you for further information.
One of the conditions of obtaining critical illness insurance is you must also purchase mortgage life insurance simultaneously.
Who can get mortgage protection insurance coverage?
You can get mortgage critical illness insurance if all of the following apply:
- You are a Canadian resident
- You are between the ages of 18 and 64
- You also buy mortgage life insurance
- You are a borrower, co-borrower or guarantor on the mortgage
What happens if you refinance or sell your home?
Your coverage will end, and you will have to reapply for it again. If you don’t qualify due to a medical condition, you may be able to keep the current policy, but the coverage amount won’t increase if your loan is larger.
If you qualify, your insurance premium rate will be based on your current age. Therefore, you will pay more for the new mortgage critical illness insurance coverage.
What are the drawbacks of mortgage critical illness insurance?
The main disadvantage to mortgage critical illness insurance is the fact that you are paying a level premium rate for a decreasing benefit. As your mortgage loan reduces, so does the coverage amount.
Also, you don’t have a choice of how to use the benefit, which is automatically used to pay off the outstanding mortgage balance. So if you want to use some of the claim payout to cover medical expenses, you wouldn’t be able to with mortgage critical illness insurance.
What are the exclusions?
Exclusions for mortgage critical illness insurance are similar to a personal policy. For example, the benefit is not payable if you’re diagnosed with cancer within 90 days of the policy’s effective date.
Also, the insurance company does not pay a benefit if you die within 30 days of a critical illness diagnosis.
How Much Does Mortgage Critical Illness Insurance Cost?
The insurance premium depends on two factors: your age and mortgage balance up to the maximum benefit amount. Once you buy mortgage critical illness insurance, your premium rate is locked in for the lifetime of your mortgage.
Age | Premium rate per $1,000 of mortgage balance |
|---|---|
18-30 | $0.16 |
31-35 | $0.21 |
36-40 | $0.30 |
41-45 | $0.50 |
46-50 | $0.73 |
51-55 | $1.07 |
56-60 | $1.88 |
61-65 | $2.25 |
Is mortgage critical illness insurance worth it?
For a small monthly cost, mortgage critical illness insurance is vital in offering financial protection if you are diagnosed with a covered critical illness. This is especially true if you don’t have any existing critical illness insurance coverage.
However, you may find the lack of flexibility, decreasing benefits, and the fact that mortgage critical illness insurance is tied to your mortgage compelling reasons why it’s not worth it. In that case, personal critical illness insurance coverage may suit you better.
Mortgage critical illness insurance vs personal critical illness insurance
While mortgage critical illness insurance only covers your mortgage, personal or individual critical illness insurance does much more. You can use the tax-free benefit to pay for medical expenses, hire a caregiver, modify your home to improve accessibility, travel for out-of-country treatment, and more.
Basically, you have the flexibility to use the benefit however you want. In contrast, the benefit from mortgage critical illness insurance has to be used to pay off the outstanding mortgage balance.
Below is a table showing the similarities and differences between personal and mortgage critical illness insurance:
Mortgage critical illness insurance | Personal critical illness insurance | |
|---|---|---|
Issue age | 18-64 | 0-65 |
The benefit is paid to | The mortgage lender | You |
Choice of how to use the benefit | No, the benefit must be used to pay off the outstanding balance of the mortgage or reduce its amount | Yes, you can choose how to use the benefit |
Maximum lump sum benefit | $500,000 | $3,000,000 |
Benefit amount | Decreases as you pay down the mortgage | Stays the same throughout the life of the policy |
Number of covered conditions | 3 to 4 | 25 to 26 |
Easy to qualify | Yes, you only have to answer a few health questions | No, there are more health-related questions and possibly a medical exam and a doctor’s report |
Guaranteed premium | Yes | Yes |
After the mortgage is repaid | Coverage ends | Coverage continues |
Lifetime coverage | Not available | Available |
Coverage tied to lender | Yes | No |
Available for renters | No | Yes |
Tax-free benefit | Yes | Yes |
Cost | Less | More |
Rider | No | Yes, you can customize your policy with riders, like the return of premium rider |
Where Can You Buy Mortgage Critical Illness Insurance?
Many lenders, especially the big banks like TD, BMO, RBC, CIBC, and Scotiabank, will offer critical illness mortgage insurance when you get a mortgage through them. Instead of critical illness tied to your mortgage, insurance companies sell personal critical illness coverage via insurance brokers.
Frequently Asked Questions
Does mortgage insurance cover cancer?
Lenders offer many mortgage protection products covering different unexpected life events. The only one that covers cancer is mortgage critical illness insurance.
Do you need to answer health questions or undergo a medical exam?
No, one of the advantages of mortgage critical illness insurance is the ease of purchase. In fact, you can qualify for mortgage protection if you answer ‘no’ to a few health-related questions on the insurance application.
Should you get critical illness insurance on your mortgage?
If you don’t have a personal critical illness insurance policy, you should get critical illness mortgage insurance.
Besides critical illness insurance, what other types of mortgage insurance are there?
Mortgage protection comes in many forms to protect you from the risks you face in life. Below are the other common mortgage insurance products lenders offer to borrowers.
Mortgage life insurance
Mortgage life insurance is mandatory if you also want to get mortgage critical illness insurance. Life coverage pays off the mortgage balance if you pass away, relieving the burden of mortgage payments for your loved ones.
Mortgage disability insurance
Instead of paying off the outstanding balance, mortgage disability insurance works by paying your monthly mortgage payments if you can’t work due to an injury or illness. It is only available for Canadian residents who work more than 30 hours per week. However, it only pays up to 24 months per disability.
Job loss insurance
Job loss insurance helps cover your monthly mortgage payments in case of involuntary job loss. Payments are only made for up to six months per job loss.
Mortgage loan insurance
Unlike the previous three types of insurance plans, which are optional creditor’s group insurance, mortgage loan insurance is mandatory if your down payment is less than 20% of the purchase price. This is because lenders consider those with high-ratio mortgages to have a higher risk of default, which is when mortgage loan insurance pays out.
Need A Critical Illness Mortgage Insurance Quote?
Mortgage critical illness insurance can offer peace of mind to homeowners, but it’s essential to understand its limitations. It only covers the mortgage balance and does not provide any coverage for medical bills or other expenses that arise when you become critically ill.
Personal critical illness insurance may be the better choice for a more comprehensive solution. It provides a lump sum payment that can be used for any expenses, not just paying off the mortgage. If you’re a homeowner or breadwinner, it’s crucial to explore all the options to ensure you have the proper financial protection in case of a critical illness.
Contact us at info@briansoinsurance.com or 604-928-1628 for a review of your situation. Take advantage of our free consultation today, and let us help you find the best coverage for your unique needs.
Get Your Critical Illness Insurance Quote Now
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