Everyone who applies for a mortgage with a bank is offered the chance to buy “mortgage insurance”. This varies by institution. The life insurance portion is tied to the balance of the mortgage and will pay out less each year as the balance of the mortgage declines – but the premiums remain the same. Some banks offer disability insurance that will make the mortgage payments in the case of total disability. These payments often do not start for 6 months and are often for only two years. Other institutions offer critical illness insurance which will pay out the balance of the mortgage if there is a diagnosis of cancer, heart attack or stroke and possibly some other conditions.
Mortgage insurance is “underwritten” at time of claim. This means that if someone dies, becomes disabled or contracts a critical illness and makes a claim, the bank will then investigate the health of the applicant. If it is found that the applicant had made a mistake on the application the claim will be turned down and the premiums will be refunded.
