Your bank offered you mortgage insurance. Here's what it isn't telling you.

How bank mortgage insurance actually works

When you close on a mortgage, your lender almost always offers "mortgage life insurance" (sometimes called creditor insurance) bundled right into the paperwork — a single yes/no health question, a premium added to your mortgage payment, and coverage starts. It's convenient, which is exactly why most people say yes without comparing it to anything.

What that convenience trades away is control. The policy is owned by the bank, not by you. The bank is the beneficiary, not your family — the payout goes straight to paying off the mortgage balance, full stop. Your family doesn't get a cheque to use as they see fit; they simply stop owing the bank.

Declining coverage, level premiums

Here's the detail most people never notice: you pay the same premium for as long as you have the policy, but the amount it actually pays out shrinks every year as you pay down your mortgage principal. A $500,000 policy taken out today might only pay $425,000 by the time a claim is made years later — because that's what's left on the loan — even though you were charged as if the coverage stayed level the whole time.

A personal term life policy works the opposite way: you choose a fixed death benefit, and it stays exactly that amount for the full term, regardless of how much mortgage (or anything else) is left to pay off.

Post-claim underwriting: the risk most people don't know about

Bank mortgage insurance is typically approved with minimal upfront health questions, which sounds like a benefit — but the real underwriting often happens after you die, when your family files the claim. If the insurer finds anything in your medical history that wasn't fully disclosed on that short application, even something you didn't think to mention, the claim can be denied and the estate is left with only the premiums refunded, not the payout.

A personally underwritten term policy does its health review upfront, while you're alive to answer questions and provide records. Once it's in force, coverage is far harder to contest.

Which one actually costs less?

Pricing varies by insurer and health profile, but personal term life is routinely 30–70% cheaper than equivalent bank mortgage coverage for the same initial death benefit — and that gap tends to be even wider for women, since bank policies are typically priced without the sex-distinct rates most personal insurers use. Bank premiums also often rise each time your mortgage renews (usually every five years), while a personal 10- or 20-year term policy locks its premium for the full term.

When bank coverage can still make sense

• You have a health condition that would make personal underwriting difficult or expensive, and simplified bank coverage is the only option available to you right now.
• You want coverage in place immediately while a personal application is still being underwritten, as a short-term bridge.
• You genuinely only care about the mortgage being paid off and have no interest in your family having flexibility with a larger payout.

Already signed up at closing? You can still switch.

Mortgage insurance isn't mandatory in Canada for a conventional (uninsured) mortgage — it's optional creditor coverage, separate from CMHC-style mortgage default insurance, which protects the lender against non-payment, not your family against your death. If you already said yes at your lender's desk, you can usually cancel it at any time and replace it with a personal term policy, often without a lapse in coverage if you time the switch correctly.