If you have less than 20% down payment on your new home, mortgage insurance is required. The cost for the mortgage insurance is added to the borrowed amount and gets repaid with the mortgage. This insurance protects the lender in the event that you default on your mortgage.

 

If you have more than 20% down payment, your mortgage is referred to as an insurable mortgage and mortgage insurance is not required. 

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Borrowers have the option to purchase personal life insurance to protect them in the event of illness, disability, loss of work, and death. 

 

Many banks offer personal life insurance as part of a mortgage. There are two major issues with using the bank for life insurance when you get a mortgage. 

 

1. The payout amount (if something tragic happens to you) decreases as your mortgage decreases. In the event of a tragic event 10 years after you buy your house, the bank's insurance option would just pay off your mortgage balance with no money going to your beneficiary. With private life insurance, the payout amount always remains the same, regardless of your mortgage balance. So, in the event of a tragic event, your beneficiary would receive the full insurance payout regardless of how much is left owing on your mortgage.  

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2. If you buy insurance through the bank and later decide to change lenders (most mortgages are paid out over 25 years), then your insurance coverage terminates once your mortgage is moved. At this point, you will be older and potentailly less healthy which means that your new premiums will be higher.  If you purchase life insurance from a 3rd party, then the insurance policy stays with you regardless of which lender you have or if you change lenders.