Is Mortgage Disability Insurance Right For You?

Is Mortgage Disability Insurance Right For You?

Written by Priyanka Correia
Fact-checked by Caitlin Wood
Last Updated May 3, 2021

Have you ever thought about what would happen if you were no longer able to work because of an injury or illness? How would you pay the bills? More specifically, how would you be able to keep up with your mortgage payments?

With a mortgage disability insurance policy, you can take advantage of a benefit that will help cover your mortgage payments for a certain amount of time. In turn, you can rest assured knowing that your most valuable asset is secure. 

Let’s take a closer look at mortgage disability insurance to help you determine if this is a policy you may want to consider buying into.

What Is Mortgage Disability Insurance?

Mortgage disability insurance provides financial protection to your family by covering your mortgage payments if you are unable to work because of an illness or injury. This type of policy covers you for a certain length of time throughout your disability and can be purchased with a mortgage life insurance policy or as an add-on to a life insurance policy.  

How Does Mortgage Disability Insurance Work?

As mentioned, mortgage disability insurance can be purchased either as a policy on its own or as a rider on a mortgage life insurance policy. In the event that you suffer a disability that renders you unable to work – whether temporarily or permanently – your mortgage disability insurance policy will begin paying a percentage of your mortgage payment every billing period. 

There is usually a 60-day waiting period, which means you will still have to cover your first couple of mortgage payments after you become disabled. After this waiting period, the policy will kick in. At this point, your insurance provider will pay the mortgage lender directly rather than providing you with the funds to make payments yourself. 

Mortgage disability insurance generally provides coverage for 2 years, which is the standard length of time for a person to recover from a disability or to look for other ways to deal with their mortgage payments.

Who Is Eligible For Mortgage Disability Insurance?

Canadian residents who are between 18 to 64 years of age and work at least 20 hours a week are typically eligible for mortgage disability insurance. 

Where Can I Get Mortgage Disability Insurance?

You can apply for a mortgage disability insurance policy from the following:

  • Banks
  • Credit unions
  • Insurance Companies
  • Insurance brokers
  • Online aggregates 

Is A Health Check Required?

A medical exam is usually not required to purchase a mortgage disability insurance policy. However, you will be asked a number of questions related to your current health and history of medical conditions. 

If there are some question marks when it comes to your health based on the answers you provide, your insurance provider may require further information or investigation to more adequately assess the risk of insuring you.

Cost Of Mortgage Disability Insurance

The price you pay for a mortgage disability insurance policy will depend on a few factors, including:

  • The cost of your mortgage payments
  • Your age when you apply
  • Your current health  

Pros And Cons Of Mortgage Disability Insurance

Pros 

  • Protects your home. Your house is likely your biggest asset, and a mortgage disability insurance policy can help you protect it if you are ever unable to continue making your mortgage payments. 
  • Easy approval. Mortgage disability insurance is one of the easier types of disability policies to get approved for.
  • Tax-free payments. The monthly payments from a mortgage disability insurance policy are tax-free, as long as the insurance premium cost has not already been deducted from your tax return.  

Cons 

  • Only covers your mortgage. This type of policy does not cover any other types of assets, like your car or other financial obligations you may have. 
  • Decreasing benefit. As your mortgage payments are made, your mortgage loan amount decreases over time. As such, your benefit will also decrease along with it. 
  • Not flexible. In contrast to traditional disability insurance whereby the benefit can be used to cover anything you wish, the benefit associated with a mortgage disability insurance policy is only applicable to your mortgage.

Final Thoughts

Mortgage disability insurance can provide you with a financial cushion to fall back on if you are ever disabled and can no longer work. It’s a very specific type of policy that will only take care of your mortgage payments. Considering this limitation, you’ll want to weigh your options between this type of insurance versus a broader policy.

Priyanka is a personal finance expert at Loans Canada. She is passionate about money management and educating Canadian consumers about how to take control of their financial lives. She has taken financial control of her life by using Mint to budget and track her expenses while growing her wealth by investing through Wealthsimple. She also believes in having an emergency fund, so she keeps a good sum of money in an easily accessible high-interest savings account. She also uses the American Express Cobalt Card to earn points on all her purchases, further fueling her savings goal. She also uses Loans Canada’s lender directory whenever she wants to compare rates from different lenders.

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