There are several good reasons to avoid mortgage life insurance.

That’s coverage that promises to pay off your remaining mortgage balance if you die. Banks and mortgage brokers often pitch it when people sign a new mortgage.

The main problem with it is that your premiums remain constant even as your coverage effectively shrinks as you gradually pay down your mortgage.

Also, the policy is tied to the loan. If you switch lenders or refinance, your insurance is cancelled. You’ll have to requalify if you still want coverage.

Another bummer: Any payout goes straight to the bank, not your family. And that’s if there’s a payout at all. With this kind of insurance, the underwriting happens only after a claim is filed. If the process finds, say, a pre-existing health condition that wasn’t flagged at enrolment, the claim could be denied, leaving your family in the lurch.

This week I learned of another item to add to this sorry list, courtesy of insurance broker Gavin Dyer. Mr. Dyer, who runs FrankCover, a Calgary-based life and health insurance brokerage, compared the price of mortgage life insurance to that of term life insurance.

He looked at a hypothetical heterosexual couple of healthy, 40-year-old non-smokers with a $600,000 mortgage. With a mortgage life insurance policy from one of the big banks, the couple would pay just over $180 a month in premiums for a policy that would pay out, at most, $600,000.

If they each took out 20-year term life insurance for $600,000, they would pay less than $89 a month combined. And that’s for, potentially, double the payout. If they both died, the claims would pay $1.2-million, not $600,000, regardless of what’s left on their mortgage loan.

I asked Mr. Dyer if there are any circumstances in which he’d recommend taking out a mortgage life policy. For smokers, he said, premiums for term life insurance can be higher than those for mortgage life policies.

Mortgage life insurance also has higher acceptance rates for people with pre-existing conditions who would be uninsurable – or face unaffordable premiums – through term insurance, he added.

But outside of a few narrow exceptions, a term life policy is the clear winner, he said via e-mail.

“For anyone who is healthy and insurable, though, independent term insurance is almost certainly the better product.”

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