July 11, 2026
Mortgage life insurance vs term: the math
The bank's mortgage insurance shrinks while the premium stays flat. Here's why personal term usually wins.
Term vs creditor insurance, side by side
| Bank mortgage life insurance | Personal term life | |
|---|---|---|
| Who gets paid | The lender | Your named beneficiary |
| Benefit over time | Shrinks with your balance | Stays level |
| Premium over time | Level (so cost-per-dollar rises) | Level, often lower |
| Underwriting | Sometimes after a claim | Up front, when you apply |
| Portability | Tied to that mortgage/lender | Yours, regardless of lender |
The benefit shrinks; the premium doesn't
Mortgage life insurance pays off your remaining balance, which falls every month as you pay down the mortgage. But the premium is level. So every year you pay the same money for less coverage — and the effective cost per dollar of protection climbs the whole time.
It pays the bank, not your family
Personal term pays your named beneficiary, who can clear the mortgage, keep the cash, or both. Mortgage insurance pays the lender, full stop — your family doesn't choose.
Some of it is underwritten after you die
With certain creditor policies, whether you actually qualified is assessed at claim time — "post-claim underwriting" — so your family can discover the coverage doesn't pay at the worst possible moment. Personal term is underwritten up front, so an approval is an approval.
A quick worked example
Priya, 34, has a $500,000 mortgage.
| Bank creditor life | Personal 25-year term | |
|---|---|---|
| Benefit year 1 | $500,000 (declining) | $500,000 (level) |
| Benefit year 15 | ~$300,000 (as balance falls) | $500,000 |
| Beneficiary | The lender | Priya's family |
| Rough monthly premium | Comparable or higher | Often lower |
By year 15 Priya's family would have level $500,000 coverage they control — versus a shrinking benefit that only clears the remaining balance and hands it to the bank.
The honest exception
If a health issue means you can't qualify for personal term, guaranteed-issue creditor insurance can be the coverage you can otherwise not get. For everyone else: price a personal term policy, name your own beneficiary, and skip the box. And don't confuse bank "mortgage life insurance" with CMHC mortgage default insurance — the mandatory coverage with a down payment under 20% that protects the lender against default. Different product, similar name.
Frequently asked questions
- Is mortgage insurance from the bank worth it?
Usually not, compared to personal term. The benefit shrinks with your balance, it pays the lender rather than your family, it's often not portable, and it may be underwritten only after a claim. Compare before you check the box.
- Mortgage life or term — which is cheaper?
Personal term is usually cheaper for equal coverage and keeps a level benefit. Run your actual mortgage numbers through the Mortgage Life vs Term tool.
- What's the difference between mortgage insurance and CMHC insurance?
Bank "mortgage life insurance" pays off your mortgage if you die. CMHC mortgage default insurance is mandatory with a down payment under 20% and protects the lender against default — unrelated to life coverage.
- Can I keep mortgage insurance if I switch lenders?
Often no — creditor coverage is typically tied to the mortgage, so switching lenders or homes can mean re-buying it at your older age and current health. Personal term moves with you.
Sources
Premium figures are illustrative, not quotes. Educational only — not insurance advice.
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mortgage insurance →Educational only — not insurance advice, and no products are sold here. Government figures verified July 2026 against their cited sources. Robert is a mascot, not a licensed advisor. See our disclaimer.