When It Comes to Mortgage Protection, 30 Year Term Life Insurance Is the Way to Go

We all know that the cost of homeownership has risen significantly in recent years – thanks to exorbitant home prices and high-interest rates. So it may come as no surprise that for many first-time homebuyers in Canada, owning a home can be dependent on:

• having two steady streams of income
• getting financial help from mom and dad
• using an inheritance
• dipping into a TFSA, RRSP, or the newly introduced First Home Savings Account (FHSA)
• taking on larger & longer mortgages than ever before
• all of the above

These days, the cost of a mortgage can be several times higher than an individual’s annual income – which is why it’s becoming more and more common to take on a mortgage of 30 years (or more), up from the standard 25-year amortization period (i.e., the length of time it will take to pay off your mortgage in full).

So with 30+ years of debt to pay down, what does that mean if a homeowner were to pass away unexpectedly? The unfortunate reality is that their loved ones would be left with a significant financial burden, would likely struggle to keep up with the mortgage payments, and may have to sell the family home.

Even in the best-case scenario – where a family could afford to continue making mortgage payments on a single income – there may not be enough savings to cover other unexpected expenses or emergencies.

The good news is, there’s a simple and affordable way to save your loved ones from the financial hardship of taking on mortgage payments without your help: Term life insurance.

What is term life insurance and how will it cover my mortgage?

Term life insurance is a type of life insurance policy that provides coverage for a specific period of time, typically ranging from 10 to 30 years. It’s a good option for mortgage protection because it provides a cost-effective way to ensure your mortgage payments are covered in the event of your untimely death.

By selecting the right term length, you can rest assured that your loved ones won’t be forced to sell their home while they are grieving the loss of a spouse or parent – especially important if you have children that go to school and participate in extra-curricular activities in the community.

Which term is best for mortgage protection?

That all depends on how many years you have left on your mortgage. If you just purchased a home and you have several decades of payments ahead of you, 30-Year Term life insurance is likely the best option for you. If you’ve got less than 10 to 20 years to go, than you may want to consider Term 10 life insurance or Term 20 life insurance.

What amount of coverage do I need?

Now that you’ve determined the ideal term, it’s a good idea to understand what amount of coverage you would need to pay off your mortgage. While it’s always best to speak to an expert, you can get a general idea by using a life insurance calculator. You will need to consider your outstanding mortgage balance, inflation, and any future expenses.

How much does term life insurance cost?

Luckily, term life insurance is typically more affordable than other types of life insurance policies, such as whole life, making it a more accessible option for homeowners with other financial obligations, like home renovations, saving for retirement, or paying for their children’s education. For example, a non-smoker in their late 30s can expect to pay approximately $45 to $55 a month for $500,000 worth of coverage.

Here’s what a 35-year-old non-smoker can expect to pay for two different coverage options:

What happens if my mortgage is paid off before the term ends?

Unlike mortgage insurance from a bank, term life insurance can be used towards any expenses (even a family vacation!) in the event of the policyowner’s untimely death. So if your mortgage is paid off, great! This gives your loved ones the option to use the death benefit (i.e., a payment made to designated family members or other loved ones) to pay off other debts, cover the cost of household maintenance, or put it towards your children’s post-secondary education, wedding, or a down payment on their future home. The options are endless – it’s your beneficiaries’ money, after all – not the bank’s. If you think about it that way, they can do it with as they please.

Thanks to today’s exorbitant housing prices, it is more important than ever to get coverage for your mortgage. The best way to go? A term life insurance policy that covers the numbers of years until your mortgage is paid off – and for many Canadians these days, that’s Term 30 life insurance.

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