Mortgage life insurance pays out the balance of the loan if the mortgage holder becomes critically ill or dies before the mortgage is full paid. It is often confused with the mortgage insurance (mandatory if the down payment is below 25%) that is provided by the Canadian Housing & Mortgage Corporation (CMHC). The CMHC insurance protects the lending institution when mortgages go into default.

While the lender usually offers this service, the mortgage holder is not required to purchase mortgage life insurance and they can do so from any insurance agency. Depending on the financial situation, it may be cheaper to simply ensure that the regular life insurance/critical illness policy is large enough to cover the amount owed on any mortgages. The cost of policies available for an Ottawa mortgage holder will depend on the size of the mortgage and the risk factors of the applicant(s).

At an extra cost, critical and terminal illness may be added to the mortgage life insurance policy. It is also possible to add other mortgage shareholders to the policy, so that in the event of the death or critical illness of any of the borrowers on the mortgage, the policy will pay out the mortgage principal. This is useful for couples and multiple-party real estate investment properties.

Critical illness mortgage life insurance will pay off the mortgage if the policy holder becomes critically ill (cancer, stroke, heart disease, etc.). Typically, the more illnesses covered by the policy, the more expensive the premiums will be.

Terminal illness mortgage life insurance is activated if the policy holder is diagnosed with a terminal illness. The insurer will pay any remaining principal on the mortgage at the time of diagnosis, rather than upon death.

Mortgage life insurance payments may be calculated in a variety of ways. Typically, the risk factors are calculated and, over time, as the amount owing on the mortgage diminishes, the payments may become smaller. More commonly, the payments are based on the average risks over the period of the mortgage and will not lessen.

Return of premium mortgage life insurance is slightly more expensive, but if the mortgage is paid off without the insurance clauses being activated, the premiums are then returned to the policy holder. In order to get the refund, insurers require that the policy is kept for the full term of the mortgage.

If you have additional questions or would like to see if you can prequalify for a mortgage in Ottawa, please call Chad Robinson at (613) 288-5836 or use our Ottawa Mortgages Directory to find a mortgage broker or mortgage bank specialist to help you.