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.
Key Points You Should Know About Mortgage Disability Insurance
| What is it? | Mortgage disability insurance helps pay your mortgage if you’re unable to make payments due to job loss as a result of a disability. |
| Coverage Offered | If you become disabled, your insurance policy will begin making a percentage of your mortgage payments to your lender following a 60-day waiting period. |
| Requirements | You’ll need to meet certain requirements to qualify, including meeting minimum weekly working hours.You may not be covered if you have a specific pre-existing medical condition. |
What Is Mortgage Disability Insurance?
Mortgage disability insurance provides financial protection to your family by covering your mortgage payments if you’re unable to work because of an illness or injury. This type of policy covers you for a certain length of time throughout your disability.
How Does Mortgage Disability Insurance Work?
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.
When Does The Policy Kick In?
There is usually a 60-day waiting period, which means you will still have to cover the 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.
How Long Are You Covered For?
Mortgage disability insurance generally provides coverage for two 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.
How Much Of Your Home Loan Does Mortgage Disability Insurance Cover?
Mortgage disability insurance can cover part or all of your regular mortgage payments, including principal and interest. In some cases, it may also include property tax payments.
When you take out this policy, you can choose the amount you want covered. The lower the coverage amount, the cheaper your premiums may be. For instance, if you choose to cover only 50% of your mortgage payments, your premiums would likely be lower than if you chose to cover 100% of your mortgage payments.
Insurance providers typically have coverage limits. For instance, Manulife offers up to $10,000 per month in coverage, while CIBC offers up to $3,000 per month in coverage. You will need to cover the portion of your mortgage payment that exceeds your policy’s maximum limit.
So, if your policy covers up to $3,000 per month and your mortgage payments are $4,000 monthly, you’ll need to cover the extra $1,000 yourself.
Who Is Eligible For Mortgage Disability Insurance?
The general requirements for mortgage disability insurance in Canada are as follows:
- Be a Canadian resident
- Be between the ages of 18 to 64 years
- Work at least 20 hours a week
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
Mortgage Disability Insurance Providers
Here are a few insurance providers that offer mortgage disability insurance plans:
| Insurance Provider | Coverage Amount | Maximum # Of Months Insured | Cancellation Period |
| Manulife | Up to $10,000/month | Up to 24 months | 60 days |
| BMO | Up to $3,000/month | N/A | N/A |
| CIBC | Up to $3,000/month | Up to 24 months | 30 days |
| Scotiabank | Up to $3,500/month | Up to 24 – 48 months | 10 days |
| National Bank | Up to $3,000/month | Up to 24 months | N/A |
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.
Are Pre-Existing Conditions Covered?
Most mortgage disability insurance policies come with a few conditions, including specific injuries or illnesses that are excluded. Pre-existing medical issues are typically not covered.
So, if you currently suffer from a medical condition, speak with a representative from your insurance company to see if you can qualify for mortgage disability insurance before applying.
Cost Of Mortgage Disability Insurance
The price of a mortgage disability insurance policy depends on a few factors, including:
- The cost of your mortgage payments
- Your age when you apply
- Your current health
So, your premiums may be higher if you’re looking to cover a larger mortgage amount. Your policy may also cost you more if you’re an older individual in poor health.
On the other hand, if you’re young, healthy, and have a relatively small mortgage to cover, your premiums may be lower.
Does Life Insurance Cover Disability?
If you already have a life insurance policy, you may be wondering if it will cover you in the event that you become disabled. Unfortunately, a life insurance policy typically doesn’t cover disabilities, regardless if it’s a term or whole life insurance policy.
To ensure coverage, you’ll need to purchase an optional rider. For instance, a mortgage disability rider will cover part or all of your monthly mortgage payments if you suffer a disability. Like a mortgage disability insurance policy, a mortgage disability add-on will provide payments for a specified period of time following your disability.
You may also choose a disability income rider, which pays out monthly benefits if you become disabled and cannot work.
Pros And Cons Of Mortgage Disability Insurance
Before buying a mortgage disability insurance plan, be sure to weigh the pros and cons first.
Pros
A mortgage disability insurance policy offers a few perks, such as the following:
- Protects your home. Your house is likely your biggest asset, and a mortgage disability insurance policy can help you protect it if you’re ever unable to continue making your mortgage payments on your own.
- Easy approval. Mortgage disability insurance may be somewhat easy to get approved for if you’re relatively healthy.
- Provides coverage if you’re self-employed. Most employers offer some sort of disability policy. But if you’re self-employed, you’ll need to take steps to cover yourself on your own. In this case, taking out a mortgage disability insurance plan can provide you with some financial coverage if you even fall ill or become severely injured and are unable to continue working as a result.
Cons
While mortgage disability insurance comes with some benefits, there are also a few drawbacks to consider:
- 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. That said, it may cover property taxes.
- Decreasing benefit over time. As your mortgage payments are made, your mortgage loan amount decreases over time. As such, your benefit will also decrease along with it, despite your premiums remaining the same.
- 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.
- May not be portable. Mortgage disability may not be portable from one lender to another. For instance, if you buy this type of policy and then switch lenders, you may not be able to bring your existing coverage with you.
Final Thoughts
Mortgage disability insurance can provide you with a financial cushion to fall back on if you’re ever disabled and can no longer work. However, 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.
