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Mortgage life insurance (creditor insurance) is optional coverage, usually sold by the lender, that pays out toward the mortgage balance if the borrower dies or becomes disabled — it protects the borrower’s family, unlike mortgage default insurance, which protects the lender.
The two are easy to confuse because both get called “mortgage insurance,” but they insure completely different things. Mortgage default insurance is mandatory on high-ratio loans and protects the lender against borrower default. Mortgage life (creditor) insurance is optional, protects the borrower’s family by reducing or clearing the balance on death or disability, and is billed as a declining monthly premium tied to the outstanding mortgage balance.
Creditor insurance is typically simplified-issue — often no medical exam at application — but that convenience comes with post-claim underwriting: eligibility can be assessed at the time of a claim rather than up front, which is a key trade-off against an independent term life insurance policy that underwrites at application.
Optional, not required: no Canadian lender can make creditor insurance a condition of approving a mortgage.
Protects the family, not the lender: pays down or clears the outstanding balance on death or disability, the opposite of what default insurance protects against.
Sold across Canada at the point of the mortgage offer: mortgage agents, brokers, associates, and courtiers hypothécaires often present it alongside the lender’s commitment.
Worth comparing to term life insurance: an independent term policy can offer coverage that doesn’t shrink with the mortgage balance and underwrites at application rather than at claim time.
Definitions reflect Canadian federal and provincial rules as of the “Updated” date above. Not advice for any specific file.
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