Term Life Insurance vs. Mortgage Life Insurance
Nov 16, 2025
Buying a home is one of the biggest financial commitments most of us will ever make. And right after you sign those papers, your lender probably asks if you’d like to “protect” your mortgage with insurance.
It sounds responsible, right? Protect your family, protect your home. But here’s the thing: the type of insurance your bank is selling — called mortgage life insurance — isn’t the best way to protect your loved ones.
Term life insurance pays your family directly if you pass away, while mortgage life insurance pays your lender to cover your remaining loan. Online providers like PolicyMe make getting term life insurance quick, affordable, and transparent.
Let’s talk about what it actually is, and why term life insurance is almost always the smarter, simpler, and more cost-effective choice.
What is mortgage life insurance?
Mortgage life insurance is designed to pay off your remaining mortgage balance if you die. But here’s what you need to know:
- The lender owns the policy, not you.
- The bank is the only beneficiary.
- The payout goes directly to your mortgage lender — not to your family.
So while it technically clears your debt, your loved ones never see a dime of that insurance money. They lose the flexibility to decide what’s best for them. Maybe paying off the mortgage isn’t even their top priority — maybe it’s keeping up with day-to-day expenses, childcare costs, or taking time off to grieve and get organized.
Mortgage life insurance takes that choice away from them.
And it gets worse: as your mortgage balance decreases, the coverage amount shrinks — but your premium stays the same. So you’re paying the same price for less and less protection every month.
Why choose term life insurance instead of mortgage life insurance?
With term life insurance, you own the policy and you name your beneficiary — usually your spouse or family. If you pass away during the term, your beneficiary receives a tax-free lump-sum payout instead of your lender.
To help you understand, if you bought a home for $600,000 with a 20-year mortgage, a mortgage life insurance policy would drop in value every year, even though your premiums don’t. A term policy for $600,000 would pay out $600,000 regardless of how long you’ve been paying into it, ensuring your family receives the full amount. They can use that money however it helps most:
- Pay off the mortgage (if that’s the right choice)
- Cover household bills or childcare
- Top up education funds
- Maintain your family’s standard of living
That flexibility matters — because every family’s situation is different.
Term life insurance is also typically much cheaper than mortgage life insurance, especially if you’re healthy. Modern online providers make it simple to apply online in minutes, often without a medical exam, and lock in your premium for the entire term (10, 20, or 30 years).
That means no surprises — your coverage and cost are guaranteed.
What you should know about the fine print of life insurance?
There’s a reason banks love to sell mortgage life insurance — it’s profitable. It’s often pushed at closing, when buyers are overwhelmed by paperwork and less likely to ask detailed questions.
Many people don’t even realize what they’ve signed up for. They think, “Great, my family’s covered if something happens to me.” But they’re really just protecting the bank’s loan, not their loved ones.
And here’s a little insider truth from the financial world: some mortgage brokers and lenders earn commissions on those insurance sales. It’s not illegal, but it’s definitely not in your best interest.
If you already have a mortgage life insurance policy, it’s worth reviewing the details. You might find you’re paying for coverage that doesn’t do what you thought it did.
Mortgage life insurance vs. mortgage insurance (CMHC): What’s the difference?
Mortgage life insurance is not the same as mortgage insurance (also known as CMHC insurance).Mortgage insurance is mandatory if you put less than 20% down on your home — it protects the lender in case you default on your payments. It has nothing to do with life insurance or protecting your family.
Confusing, right? The names sound similar, but the purposes couldn’t be more different.
TL;DR: What life insurance to get to protect your mortgage
Your mortgage is a big responsibility, but protecting your family’s future shouldn’t mean locking yourself into a product that only benefits the bank.
Term life insurance gives you:
- Ownership of your policy
- The ability to choose your beneficiary
- Guaranteed premiums for your chosen term
- Flexibility in how the payout is used
- Often, lower premiums for better coverage
Mortgage life insurance gives you… a payout that goes straight to your lender and shrinks as your mortgage balance drops.
If you want true peace of mind — knowing your loved ones will have options and financial breathing room — choose term life insurance instead.
How Can You Get Term Life Insurance Online in Canada?
Before you opt for your bank’s mortgage life insurance, take a moment to compare it with one of Canada’s top-rated term life insurance options: PolicyMe.
With PolicyMe, you can apply online in minutes, see your rate instantly, and get coverage that actually protects your loved ones — not your lender.
Because financial security isn’t about protecting your bank — it’s about protecting your people.
[Get your free quote with PolicyMe here in 5 minutes or less!]
FAQs
What is the main difference between mortgage life insurance and term life insurance?
The main difference is who receives the payout if you die. With mortgage life insurance, the payout will go directly to your mortgage lender to pay off your mortgage. With term life insurance, the money goes to whoever you choose as your beneficiary, usually your family, and they can use the money how they choose, including paying off the mortgage.
Does mortgage life insurance coverage decrease over time?
Yes, as you pay down your mortgage, the coverage amount decreases to match what you still owe. So even though your monthly premium stays the same, the actual payout gets smaller as your mortgage balance goes down.
How much does mortgage life insurance cost?
The cost varies based on facts like your age, mortgage size, and length of your loan. Mortgage life insurance is often more expensive than regular term life insurance for the same amount of coverage, especially if you’re healthy.
