When you go to your lender for a mortgage, they may ask whether you want to insure your home loan with an array of optional financial products to make your home ownership more secure. But this comes at a price.
These products include mortgage life insurance, mortgage disability insurance and title insurance.
Your lender must provide easy-to-understand information about these products; it's up to you to read it and ask questions to ensure that you understand your options.
You do not have to buy any of these three types of insurance to get your mortgage. In fact, financial institutions may not pressure customers to buy life, disability or title insurance in relation to a mortgage.
Mortgage disability insurance
Why buy this insurance? It provides the certainty of knowing that your mortgage will be paid even if you are incapacitated. The insurer will make the mortgage payments – for a specific period of time – to your lender if you cannot work because of a severe injury or illness.
What you need to know: This would be an ongoing cost for the duration of your mortgage. Some insurers only cover specific illnesses or injuries, and they don't usually cover pre-existing conditions. Before purchasing such insurance, ask your employer whether they offer similar coverage. Compare costs before agreeing to buy.
Mortgage life insurance
Why buy this insurance? It ensures that, in the event of your death, your mortgage will be paid off so your loved ones do not have to worry.
What you need to know: This would be an ongoing cost for the duration of your mortgage. You may already have this coverage through an existing life insurance policy. The benefits of your existing coverage could be used to pay off or pay down the mortgage in the event of your death.
Why buy this insurance? If you are worried about title fraud—criminals stealing your identity to get a new mortgage on your property, or fraudulently transferring your title to themselves and then selling or mortgaging your home.
What you need to know: This insurance consists of a one-time, upfront fee. Lender title insurance protects the lender from losses until the mortgage has been paid; homeowner title insurance protects the homeowner from losses related to title as long as he or she owns the home, even if there is no mortgage.
More information is available at itpaystoknow.gc.ca.
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