Imagine you are losing your income due to a serious illness, but your mortgage payments are still due each month. It can lead to the loss of the home you have worked so hard for. That’s why protecting your home and financial stability is never easier with mortgage critical illness insurance. This tax-free benefit, flexibility of use, and protection of long-term financial security create value that far exceeds the premium costs.
But, is it the best solution for you? What illness is covered in this product? Discover all about it in this article with BestMO.
What is mortgage critical illness insurance?
Mortgage critical illness insurance is a coverage that pays off your outstanding mortgage balance if you are diagnosed with a covered critical illness. It combines traditional critical illness insurance with a mortgage to target your home loan obligations.
The insurance works through your mortgage lender or can be purchased independently. Major Canadian insurers, including Sun Life Financial, Manulife, Canada Life, Simplinsur, etc., offer these products with different options tailored to your needs.
What does mortgage critical illness cover?
Mortgage critical illness insurance covers life-threatening conditions that could prevent you from working and earning an income. According to Sun Life, core covered conditions include:
- Cancer (carcinoma, melanoma, leukemia, lymphoma, sarcoma)
- Heart attack (acute myocardial infarction)
- Stroke
- Major organ failure (heart, lung, liver, kidney, pancreas)
- Severe burns
- Acquired brain injury due to external trauma
- Coronary artery bypass surgery
- Aortic surgery
- Bacterial meningitis
- Multiple sclerosis
- Parkinson’s disease
- Alzheimer’s disease
- Paralysis
- Loss of limbs
- Major head trauma
- Benign brain tumour
- Occupational HIV infection
- Loss of speech
- Loss of independent existence
- Coma
- Blindness
- Aplastic anemia
- Benign brain tumour
- Deafness
If you need a product that covers your regular mortgage payments if you become disabled, consider mortgage disability insurance.
What are the exclusions in the mortgage critical illness insurance?
Though this option can cover life-threatening conditions that could endanger your ability to maintain mortgage payments, it has some exceptions. So, understanding what is not covered in your package is crucial to optimizing your financial plan.
- Any condition diagnosed before the policy starts
- Symptoms experienced but not diagnosed within the look-back period
- Genetic conditions already known
- Drug or alcohol-related illnesses
- War or terrorism-related injuries
- Criminal activity-related injuries
For an alternative plan, consider mortgage life insurance to protect your mortgage payments in the event of an unexpected death.
How much does mortgage critical illness insurance cost?
According to policyadvisor.com, mortgage critical illness insurance premiums in Canada range from $15 to $385 per month. The cost of mortgage critical illness insurance varies based on the insured amount, the applicant’s age and lifestyle, and applicable discounts. Older applicants, smokers, and those with high-risk occupations or hobbies pay more due to higher health risks. Moreover, bundling this insurance can lead to package discounts.
For example, at CIBC, the monthly premium is calculated as follows:
Premium = (Initial Insured Amount / 1,000) * Premium Rate
So, always check specific rates with your lender and consider bundling options to reduce the cost.
Who can apply for mortgage critical illness insurance?
The conditions vary across policies, but in common, they require 4 touchpoints.
- Canadian residents between 18 and 65 years old.
- Have an active mortgage with a participating lender.
- Satisfactory health questionnaire responses.
- No terminal illness diagnosis at the time of application.
Moreover, the application process involves answering health-related questions. If your answer is “no” to all questions, the approval is automatic.
However, the “yes” does not mean it is denied. In this case, insurers will request additional information. They may require a medical exam, blood work, or a physician’s statement.
In case your application is declined or postponed, you may still reapply after specific waiting periods.
What are the key benefits of mortgage critical illness insurance?
A critical illness mortgage insurance brings 5 advantages that can extend far beyond simple mortgage payments.
- Tax-free: This tax advantage makes a notable difference compared to other income sources during illness. It means every dollar works toward your recovery and financial stability.
- Quick financial relief: This product can bring the immediate elimination of mortgage stress when you are diagnosed with a covered illness.
- Protection of retirement savings: Without this coverage, many Canadians devastate their retirement savings during a critical illness.
- Family stability and reduced stress: The help of this financial security during illness in psychological aspects can strengthen recovery outcomes.
- Enhanced treatment options: Financial freedom during critical illness opens treatment possibilities that provincial healthcare cannot provide.
Is mortgage critical illness cover worth it?
Determining whether mortgage critical illness insurance is worth the investment depends on your personal financial situation and risk factors.
This product is useful for:
- Self-employed professionals and business owners: Without employer sick leave or disability benefits, they face a financial crisis when illness strikes.
- Primary income earners with young families: When your family depends primarily on your income, the ability for your spouse to become a caregiver without financial pressure significantly improves recovery outcomes. The tax-free lump sum eliminates the largest monthly expense precisely when income drops, and medical costs rise.
- Those with limited emergency savings: For homeowners with under three months of savings, this insurance bridges the critical gap between illness onset and eventual recovery or return to work. The coverage prevents desperate measures like high-interest borrowing or premature RRSP withdrawals that devastate long-term retirement security.
If this package works well for you, you can buy it separately or consider the combined option – mortgage protection insurance for extended coverage.
However, it is not ideal for:
- Those with employer benefit packages: When your employer provides both short and long-term disability insurance, plus extended health benefits for medical expenses, this product becomes duplicative.
- Homeowners nearing mortgage completion: If you have less than five years remaining on your mortgage and have accumulated home equity, this product gives fewer benefits.
- Wealthy individuals with multiple income sources and substantial investment portfolios: When your investment income alone covers living expenses, or you own income-producing properties, critical illness becomes inconvenient rather than financially devastating.
FAQs about critical illness mortgage insurance
Is mortgage critical illness insurance portable?
Many mortgage critical illness policies remain valid if you switch lenders or move homes.
What is the waiting period for mortgage critical illness insurance benefits?
Most policies require a 30-day survival period after diagnosis. You need to survive this period to receive the benefit payment.
Does critical illness cover pay off your mortgage?
Yes. It can pay off an entire or partial payment, depending on your coverage amount and outstanding loan balance. The benefit pays to you, not the lender, giving you control over fund usage.
Do you have to have critical illness cover with a mortgage?
No, it is not mandatory when obtaining a mortgage in Canada. Lenders cannot require you to purchase their insurance products as a condition of mortgage approval.
The bottom line
To sum up, mortgage critical illness insurance gives valuable protection for most homeowners. However, before deciding to buy, you should consider your personal risk factors, financial situation, and existing coverage. You can also consult with an advisor to evaluate your needs and compare options from multiple providers.
