Understanding Mortgage Insurance: Why Lender Policies May Not Protect You

Mortgage insurance is often presented as a necessary safeguard for homeowners. However, many Canadians are unaware that the type of mortgage insurance sold directly through lenders may not provide the protection they assume. While it may appear convenient, lender-provided mortgage insurance frequently benefits the bank — not the policyholder.

Why Lender Mortgage Insurance May Not Be in Your Best Interest

Many homeowners purchase mortgage insurance from their lender under the impression that it is required or that it fully protects their family. In reality, these policies primarily protect the lender, leaving homeowners vulnerable. Consider the following limitations:

🚫 Lender Owns the Policy
The policy is in the bank’s name, not yours. You pay the premiums, but the lender controls the benefits.

🚫 Post-Claim Underwriting
Lenders often do not fully underwrite the policy at the time of application. Instead, underwriting occurs when a claim is filed. This can result in claims being denied due to undisclosed or misunderstood medical conditions — even minor ones.

🚫 Declining Coverage
As the mortgage balance decreases, so does your coverage — yet premiums remain unchanged.

🚫 Potential Premium Increases
When renewing or refinancing, premiums may rise because the policyholder is older, and the mortgage balance has not decreased sufficiently.

🚫 Non-Portable Coverage
Most homeowners change lenders 2–3 times during the life of their mortgage. Each time, the policy must be requalified, leaving gaps in protection.

🚫 Lender as Beneficiary
The payout from a lender-owned policy goes to the bank, not your family. Homeowners often assume the insurance is for their loved ones, but the reality is different.

A Better Alternative: Personally Owned Insurance

Personally owned life insurance offers significant advantages over lender-provided policies.

✔ You Own the Policy – the bank does not control the coverage.
✔ Family Receives the Payout – they can use it according to your wishes, not the lender’s.
✔ Coverage Remains with You – even if you switch lenders or move.
✔ Tailored Coverage Amount – choose an amount that aligns with your overall financial plan.
✔ Coverage Does Not Decline – unlike lender policies, it remains consistent even as your mortgage is paid down.
✔ Typically More Affordable – offers better protection at a lower cost, with increased flexibility.

Key Takeaway

Mortgage insurance through your lender may seem like a simple solution, but convenience comes at a cost. If you are serious about protecting your family and building wealth, it is crucial to ensure your insurance actually safeguards your loved ones, not just your mortgage.

Reviewing your current coverage and comparing your options with one of our professionals can help you make an informed decision and secure the protection your family deserves.

💡 Smart money protects itself. Make sure your coverage works for you.