Mortgage Protection Insurance: How It Works and Who Might Need It

Mortgage protection insurance (MPI) pays off your home loan if you die, or covers your monthly payments if you become disabled, critically ill or lose your job.

Funds from an MPI policy are paid directly to your lender or bank, so your family won’t receive any benefit from the coverage as they would with a standard life insurance policy.

What is mortgage protection insurance?

Mortgage protection insurance, also called creditor insurance within the industry, is designed to cover your home loan payments or balance if something happens to you. MPI coverage is always optional. Underwriting is typically faster upfront with MPI compared to life insurance, offering borrowers more speed and convenience.

How mortgage protection insurance works

When you purchase MPI, here’s what happens if you experience a qualifying event:

"The declining benefit policy just never makes sense,” says Ben Thompson, a mortgage broker with Centum Financial in Kelowna, British Columbia. He says he rarely recommends MPI as a coverage option. "If I take out a million-dollar mortgage and I'm paying $50 a month, but then I'm also paying my principal and interest as I pay that down, why pay for a declining benefit?" MPI is often tied to your specific mortgage and lender; the policy is not portable if you move to another home or change lenders at renewal, says Adam Mamdani, vice president with RBC Insurance.

Even if you opt for MPI, it's worth considering other coverage needs. "If you think about protecting yourself and a family completely, you really need to think a bit more broadly than just what that mortgage piece will do for your family if something were to happen to you," says Chris Cheng, vice president of Prospr at Sun Life Canada.

On the other hand, personal insurance products, such as term life insurance, are portable, convertible and highly customizable if you want coverage that exceeds your mortgage balance, Mamdani explains.

Who should get mortgage protection insurance?

Despite some limitations, MPI can make sense in specific situations. In many cases, MPI includes a 30-day review period after closing on your mortgage, so you can use it temporarily for “breathing room” while shopping for permanent personal insurance, Thompson says.

MPI may be worth exploring if pre-existing health conditions make traditional life insurance policies too expensive or if you’ve been denied coverage. MPI underwriting is typically less stringent than traditional life insurance, though you still must disclose some health information when you apply, and you still may be denied coverage.

How much MPI costs

MPI premiums vary depending on your age, health, smoking status, mortgage balance and coverage type.

For example, on a $350,000 mortgage with monthly payments of $2,000, a 35-year-old Ontario borrower would pay about $53 per month for an MPI policy with a death benefit only or $94 that covers both death and disability combined, according to an estimate for an RBC Insurance HomeProtector policy.

Meanwhile, the same person could potentially get a 25-year term life policy for about $45 per month with a death benefit of $350,000 — an amount that would not decrease over the life of the policy.

Alternatives to MPI

With personal insurance options, you’ll get more comprehensive coverage tailored to your broader financial and family needs. These options may also be more cost-effective than MPI for most Canadians.

Option 1: Term life insurance

How it works: You purchase a policy for a set time period. Premiums and benefits are fixed amounts.

Best for: Homeowners who want comprehensive, flexible protection.

Option 2: Disability insurance

How it works: Replaces a portion (60% to 85%) of your income if you’re unable to work due to injury or illness. Depending on the specifics of your policy, long-term disability coverage may last for a specified period (two, five or 10 years), or up to a certain age limit (typically age 65).

Best for: Primary income earners, especially those in physically demanding jobs or with specialized skills. Keep in mind that while some employers might offer this coverage, it’s typically limited and doesn’t transfer between jobs, Mamdani points out.

Option 3: Critical illness insurance

How it works: Pays a lump sum if you’re diagnosed with a covered condition (typically cancer, heart attack, stroke and others).

Best for: Those with a family history of serious illness or who want comprehensive health-related coverage.

Comparing MPI with other mortgage protection options

Here's how MPI stacks up against other options:

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