Now that you have decided to become homeowners, fear of an early death may cost unsuspecting mortgage holders a bundle.  When you were renting, life insurance may or may not have played an important role in your lives.  When you buy a home, it seems that the mind set changes somewhat.  The mortgage company does not have to pressure most people into buying life insurance.  For some reason, most home buyers now realize the importance of  life insurance, at least enough to cover the mortgage, should something go wrong.
Before you buy life insurance from your mortgage company, you should know that, if you are presently in good health, life insurance purchased from your lender may not be a very smart idea.  There is a very good reason why you should decline the lender's life insurance offer: YOU NEVER OWN THE POLICY.
An example may help clarify the above statement.  Let us suppose that you buy life insurance from ABC Bank in the amount of $100,000, to cover that $100,000 mortgage you just took out.  Let us again suppose that this insurance coverage cost $40.00 per month.  Let us further hypothesize that you continue to pay this insurance for the next 15 years.  Then tragedy happens, and your estate goes to the mortgage company to collect on the life insurance.  Your balance outstanding on the mortgage is now down to $50,000.  The lender is only obligated to payoff the mortgage of $50,000.  The whole time you were paying for $100,000 coverage, but your estate only got $50,000 worth of claim.  Had you taken out independent term life insurance at the onset, for $100,000, your estate would now be collecting a cheque for $100,000.  Once collected,  your estate may want to clear the outstanding mortgage, it would have $50,000 left over, and a house would be free and clear.  If your estate wanted to invest the $100,000 in mutual funds instead of paying off the mortgage, it would have that choice. If you purchase life insurance from the lending institution that carries your mortgage, you do not have that choice.

There is another reason why independent life insurance coverage is ideal in a mortgage situation.  It is relatively simple today to switch your mortgage form ABC Bank to XYZ Trust company.  When your mortgage comes due (maturity date), most home owners know that they can shop from lender to lender & offer to transfer their mortgage to the lender offering the best rate.  Had you purchased life insurance through ABC Bank when you started, transferring your mortgage would cancel the original life insurance coverage.  Now that you are three to five years older, identical coverage with the new lender would mean increased life insurance premiums (in most cases) and a potential health exam.  Had you purchased independent life insurance coverage at the beginning, your coverage would continue uninterrupted, even if you changed mortgage institution.  You may find that independent life coverage (term life insurance) is a few dollars more per month, however the advantages far outweigh the cost increase over lender proposed coverage.  If your health is a question mark, then lender coverage is probably the only reasonable cost life insurance you can buy.

Life insurance on a mortgage is often confused with "mortgage insurance".  Most lenders quote high ratio mortgage default insurance as simply mortgage insurance.  The default insurance is the insurance the lender takes out with Canada Mortgage & Housing Corporation (CMHC) or GE Capital (GEC); this insurance is not life insurance, nor disability insurance, it is simply default insurance meant to protect the lender, not the Consumer.  By Canadian law, if your mortgage exceeds 75% financing, then the institution who funds your mortgage must go though CMHC or GEC to insure that they, the mortgage lender, will not lose money in a default situation. This insurance is not to be confused with life insurance.