More homeowners are buying life insurance to protect their biggest asset

Homes that have been sold in Whitby, Ont. Photo by Mark Sommerfeld/Bloomberg files

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As housing prices fall, mortgage rates rise and the overall cost of living continues to squeeze budgets, Canadians are turning to life insurance to safeguard their biggest asset — and relieve their loved ones of the potential liability.

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Recent data from PolicyMe, a digital insurance platform, suggests more Canadians are buying life insurance to cover their mortgages and brace against economic instability.

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PolicyMe’s data highlights how homeowners are opting for nearly 40 per cent higher coverage on term life insurance than non-homeowners. On average, Canadians with a home loan are taking out $726,660 in coverage, versus $553,124 for those without one.

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The gap is reflective of the increased debt homeowners are taking on, with higher coverage serving to protect dependents from inheriting the mortgage costs.

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PolicyMe also notes changes in homeownership demographics, which has implications for both insurers and life insurance buyers. The company said the peak mortgage-owning age group has shifted upwards in the last five years, with most mortgagors now between 35 and 39 years old, up from 30 to 34 in 2021.

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“I think that’s where the insurance industry needs to be more adaptive, thinking not just about issuing coverage, but getting more innovative with changing coverage and how an individual’s needs change over time,” said Andrew Ostro, chief executive and co-founder of PolicyMe.

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Homeowning Canadians between 25 and 29 are taking out 59.9 per cent more coverage than their non-homeowner peers, according to the company. This is due to higher mortgage debt and lower savings, with the insurance policy locking in protection for their assets.

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“Everything is more expensive than it was. So when you’re calculating what your future expenses are, what your family might need, that’s evolving quite a bit and being reflected in the amount of coverage people are buying, especially at younger ages,” said Ostro.

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Mortgage life insurance ensures the balance owing on the home is paid to the bank in the event the policy holder passes away. While term life insurance provides payout directly to beneficiaries, in the case of mortgage life insurance, the payout goes directly to the lender covering the outstanding mortgage debt.

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“Term life insurance is typically significantly less expensive than mortgage insurance because there’s underwriting. The insurance company is learning a little more about you so they can offer you a better price,” said Ostro. He added that understanding the difference between the two types of insurance is key to long-term financial planning.

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“The most important thing is that there is coverage. I’d rather someone get mortgage insurance than no insurance at all,” he said. “But, if we could raise awareness of the differences and allow people to be more educated in their decisions, that would definitely be beneficial.”

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