Do you need life insurance to buy a house in Canada?

Buying your first home is a significant financial commitment. Think about your monthly living expenses, property taxes, and mortgage payments. If something unexpected happened to you, how would your loved ones manage these costs? That's where life insurance coverage comes in – it provides a tax-free payment to help policyholders protect their families.

Is life insurance required when buying a house in Canada?

No, life insurance isn’t required, but it’s still a good idea to have it in place before you get a house and are responsible for paying the mortgage. That way, if you die, your life insurance can help make sure your partner or family can keep the home and avoid burdening them with debt.

What insurance do you need to buy a house?

Of course, you’ll need homeowners’ insurance to cover things like fire, theft, etc. But you’ll also want life insurance to help protect your mortgage and family.

There are different types of life insurance policies to choose from, namely:

1. term life insurance, and
2. permanent life insurance

Another type of coverage to consider is mortgage protection solutions. This combines two types of insurance to help protect you and your family:

• term life insurance and
• critical illness insurance.

Are you curious how the combination of these insurance products differs from a bank’s mortgage insurance? Here’s the quick answer:

• Mortgage insurance from a bank or other lender covers only your outstanding mortgage balance. And, that money goes directly to the bank or mortgage lender, not a beneficiary.
• Mortgage protection solutions (with life and critical illness insurance) provides a lump sum amount to use however you or your family wishes. This can help pay for the mortgage, cover debts, pay for childcare, and more.

Learn more about the difference between life insurance vs mortgage insurance

Can you use your life insurance to purchase a home?

Some permanent life insurance policies build up cash value over time that you can borrow against for a down payment. This feature works like a built-in safety net for major purchases. The amount available depends on how long you've held the policy and your premium payments.

Before using your policy this way, consider that any loan reduces your death benefit until your loan is repaid. Your beneficiaries would receive less if something happened to you. If you’re repaying your policy loan, this will reduce your cash flow. Many financial institutions also accept permanent life insurance policies as collateral for mortgages, which could help secure better loan terms.

Connect with a Sun Life advisor about which approach aligns with your home-buying goals

What type of life insurance do you need to cover your mortgage?

Sun Life offers mortgage protection solutions, which bundles term life insurance and critical illness insurance.

• If the homeowner dies, the term life insurance component of mortgage protection solutions pays out the death benefit to the beneficiaries, who can use that money for any purpose, including making mortgage payments.
• If the homeowner is diagnosed with a covered critical illness, the critical illness insurance component of mortgage protection solutions offers a lump sum payment that can be used for mortgage payments or any other expenses.

Unlike traditional mortgage insurance offered by banks, Sun Life’s mortgage protection solutions can offer more flexibility, customizable coverage, and the ability to keep the policy even if you change lenders.