MORTGAGE DISABILITY INSURANCE DEFINITION
A financial protection product that provides individuals with a monthly income to apply toward their mortgage payments if they get so injured or sick that they cannot work. The monthly premiums for mortgage disability insurance depend on the applicant’s health and the amount of the mortgage payment. The premium for mortgage disability insurance may be higher for applicants with current or past health problems. Mortgage disability insurance is available from a number of companies, including Canada Life, Scotiabank, RBC Royal Bank and BMO Bank of Montreal. Each company’s mortgage disability insurance policies have slightly different conditions and benefits. Premiums are typically fixed for the life of the policy based on your age and health at the time you apply.
EXAMPLE
Derek recently bought a house and is considering purchasing mortgage disability insurance. He meets with a life insurance broker to discuss his options. The broker advises him that while mortgage disability insurance is a valid product, he might be better off purchasing a broader disability insurance policy that is based on his income. That way, if he becomes disabled and can’t work, he’ll receive enough income to cover more of his monthly expenses than just his mortgage payment. The broker also recommends that Derek purchase term life insurance to protect his wife and daughter in case he passes away unexpectedly, because while the mortgage disability insurance might also have a mortgage life insurance option, that policy might pay the lender directly instead of letting his family choose how to use the benefit in the way that will help them the most.
FIRST FOUNDATION TIPS
If you decide to purchase mortgage disability insurance, make sure you understand how the insurer defines “disability,” how much money you will receive each month, how many months the policy will pay out benefits for, and how long the waiting period is between when you become disabled and when you will start to receive benefits. For example, the insurance may have a 60-day waiting period from the date of your disability diagnosis and a maximum payout period of 24 months. Also find out before purchasing a policy whether the policy would cover your premiums during the time you were receiving benefit payments if you ever needed to file a claim.
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