Lender insurance vs. your own policy

Quick answer

Mortgage life insurance from a lender pays your lender, and the payout shrinks as you pay down the mortgage. A term or permanent life policy you own pays the people you choose, and the payout stays the same while the policy is in force. Mortgage insurance from a lender is optional. You don’t need it to get a mortgage.

Mortgage life insurance from a lender

The lender receives the death benefit, not your family.
The benefit is tied to what you still owe, so it goes down as you pay off the mortgage.
Premiums are based on your age when you apply and the mortgage amount. They generally stay the same as the balance falls.
It’s optional. You don’t need it to qualify for a mortgage.

A life insurance policy you own

You choose the beneficiary, and the death benefit is paid to them.
The death benefit stays the same while the policy is in force.
Premiums depend on the type of insurance and on your age, gender and medical history.

Mortgage disability and critical illness coverage

Lenders may also offer coverage that makes your payments if you can’t work because of a serious illness or injury. Pre-existing conditions are usually not covered. Ask to see the insurance certificate before you apply.

Before you decide

Check what coverage you already have, including through work.
Compare who gets paid, how much, and for how long.

Side-by-side

<table><thead><tr><th><span class="vlc-sr">Feature</span></th><th>Lender’s mortgage insurance</th><th>Your own policy</th></tr></thead><tbody><tr><th>Who gets paid</th><td data-l="Lender’s mortgage insurance">Your lender</td><td data-l="Your own policy">The people you name</td></tr><tr><th>Payout over time</th><td data-l="Lender’s mortgage insurance">Goes down with your balance</td><td data-l="Your own policy">Stays the same</td></tr><tr><th>Premiums</th><td data-l="Lender’s mortgage insurance">Based on age at application and mortgage amount</td><td data-l="Your own policy">Based on the type of insurance, age, gender and health</td></tr><tr><th>Required for a mortgage?</th><td data-l="Lender’s mortgage insurance">No</td><td data-l="Your own policy">No</td></tr></tbody></table>

An example

Illustrative only — not a quote

Five years into a $500,000 mortgage with a 25-year amortization, the balance might be roughly $435,000 to $445,000, depending on the rate. Lender coverage would pay about that balance to the lender. A $500,000 term policy that is still in force would generally pay the $500,000 death benefit to the named beneficiary, who could use it toward the mortgage and other financial needs. Real figures depend on your mortgage and policy.