Mortgage Insurance vs Term Life Calculator

What this calculator does

Nearly every Canadian mortgage arrives with an offer of creditor life insurance, usually on the paperwork you are already signing. Most people tick the box without ever seeing what the same protection would cost as a personal term life policy.

This page builds that comparison from your real amortization schedule. Creditor insurance covers your outstanding balance, so its coverage falls every year you pay the mortgage down — while the premium generally does not. Term life holds a level amount for the whole term. The result is that the two products cost increasingly different amounts per dollar of protection, and the page shows exactly how much.

• Your creditor coverage falling year by year, against level term coverage
• Cost per $1,000 of cover at years 1, 10 and 20 — the number that makes it concrete
• Total premiums for each over your chosen horizon
• The term premium at which the two break even, so you can test a real quote
• What each product actually does: beneficiary, portability, and when your health is assessed

Why the same premium buys less every year

Creditor insurance pays out your outstanding mortgage balance. That is the entire product, and it is why the coverage shrinks: after a decade of payments, a $600,000 mortgage is nearer $435,000, so that is what the policy would pay. The premium, meanwhile, was set at the start and generally stays there.

Dividing one by the other gives the figure that makes this decision obvious. On the default numbers, creditor insurance costs about $1.60 per $1,000 of cover in year one, $2.15 by year ten and $5.25 by year twenty. The term policy costs $0.84 per $1,000 in year one — and $0.84 in year twenty, because neither its price nor its coverage has moved.

That is not a criticism of how creditor insurance is priced; a product that covers a falling balance will always look like this. It is an argument for knowing that it is happening, because the offer is rarely presented that way.

• Creditor cover equals your outstanding balance, and falls with it
• The premium generally does not fall alongside the coverage
• So the cost per $1,000 of protection rises every single year
• Term life holds both its price and its coverage level for the term
• The gap between the two widens for as long as you hold the mortgage

The number to take to a real quote

Everything above follows from two premiums you type in. If you enter a low term life figure, the page will tell you term life wins — which is not much of a finding. So the calculator also computes the break-even: the monthly term premium at which the two cost exactly the same in total.

That figure is useful in a way the comparison alone is not, because you can test it. Take it to a broker or an insurer, get an underwritten quote, and see which side of the line you land on. If the real quote comes in under the break-even, term life is cheaper and holds level coverage as well. If it comes in over, creditor insurance genuinely is the cheaper option on price, and the decision turns on the other differences instead.

When your mortgage would be paid off before the term ends, the break-even drops below the creditor premium — because the term policy keeps charging for years after the creditor policy has stopped. The calculator accounts for that rather than comparing unequal horizons.

• The break-even is the term premium at which total costs match
• Below it, term life costs less; above it, creditor insurance does
• It is a threshold you can test, not a conclusion you have to accept
• A mortgage that clears early lowers the break-even, and the page adjusts

When your health gets assessed

This is the difference that matters most if the insurance is ever actually needed, and it is the one least often explained at the point of sale.

Creditor insurance is commonly sold on a few health questions with no medical examination. That makes it easy to get — a genuine advantage, and for someone with a complicated health history it can be a decisive one. But with several insurers the full review of your medical history happens only when a claim is made. A claim can therefore be declined years into paying premiums, on the basis of something that was true on the day you signed.

Term life is underwritten at application. It is more work, it takes longer, and you can be declined or charged more — but you find out then, rather than your family finding out later. Ask your lender directly which applies to the policy you are being offered; it is a fair question and the answer should be in the certificate of insurance.

• Creditor insurance is often approved on a questionnaire alone
• With some insurers the medical review happens only at claim time
• Term life is underwritten up front, so coverage is settled before it is needed
• Simplified approval is a real advantage if underwriting would be difficult for you
• Ask when your health is assessed — the answer is in the certificate of insurance

The differences that are not about price

Creditor insurance pays the lender. The money clears the mortgage and the policy ends. That is straightforward, and for some households it is exactly what is wanted.

Term life pays whoever you name, and they decide what to do with it. They might clear the mortgage. They might keep a low-rate mortgage running and use the money for income instead. That choice belongs to them rather than to the contract.

The other practical difference is portability. Creditor insurance is generally attached to the mortgage, so switching lenders at renewal usually ends the coverage and means reapplying — at whatever age and health you are by then. A term policy is unaffected by which lender holds your mortgage, or by whether you have a mortgage at all.

• Creditor insurance pays the lender; term life pays your beneficiary
• Your beneficiary can choose whether clearing the mortgage is the best use of it
• Creditor cover generally ends when you switch lenders
• A term policy stays with you regardless of the mortgage
• Creditor insurance is easier to arrange, which is a real advantage for some

Using your results well

Get an underwritten term life quote before cancelling any creditor insurance you already hold. The premium on this page is whatever you typed in; a real one depends on a medical, and it can come back higher than expected. Never cancel existing coverage until the replacement is approved and in force.

If your health would make underwriting difficult, take that seriously. Simplified approval is worth something real, and it is the one thing these numbers cannot price. The honest answer in that case may well be the creditor policy, or a term policy from an insurer that specialises in harder files — which is a conversation rather than a calculation.

And ask your lender the underwriting question directly. Whether your health is reviewed now or at claim time is the single most consequential detail in the product, and it is knowable before you sign.

• Get an underwritten quote, not an estimate, before deciding
• Never cancel existing coverage until the replacement is in force
• Ask when your health is assessed — now, or when a claim is made
• If underwriting would be hard for you, simplified approval has real value
• Check what happens to creditor coverage if you switch lenders at renewal