I remember years ago (in the late 80's) talking to clients about their upcoming mortgage that I was closing, and they asked me about insurance coverage. It seemed in those days it was definitely something we talked about last and meekly offered life insurance coverage which was our only insurance product.

Even then clients were more interested in disability coverage, but we did not offer that. A few years later it was added to our product suite, but for me that conversation was a turning point to think more about how a mortgage and insurance fits into your overall financial plan.

I am going to focus on disability coverage with this blog because it may be a better choice for many homeowners these days given limited or no coverage through employers. Disability insurance is mortgage payment protection. It pays the insured's monthly mortgage payment when the insured is disabled, up to a maximum of 24 months.

Disability insurance may be a better choice for younger home buyers than life insurance because they have a much greater chance of being disabled, either through illness or injury, than they do of passing away before they reach age 65.

Disability insurance coverage ensures that mortgage payments are covered and there is no worry about getting behind in their payments. Creditor disability insurance supplements what they might receive from an employer's disability plan and allows it to cover living expenses other than a mortgage. This means their credit rating should stay intact - a good credit rating being an asset for their entire life.

At BMO we offer a 50% coverage option. This means that the customer can choose to cover either their full payment (100%) or 50% of their monthly payment. In some cases where there are two people insured on the same mortgage and they are both wage-earners, they select the 50% option - 50% for each. It's less costly and should disability strike (unlikely to happen to both at the same time) their portion of the monthly payment is covered.

Hopefully you never have to use disability coverage but the peace of mind may well be worth the cost to you. It is definitely worth checking out.

This is also a time for clients to review life insurance coverage as well. We always hear that Canadians are under-insured in life insurance, and of course no one wants to leave their family in the unfortunate position of perhaps having to sell their home in the case of an unexpected death. It's not a fun topic, but one that should be broached during the home buying process. Creditor insurance from the bank is usually purchased through a group policy so there is a less rigorous qualification process and the coverage is specific to the debt. I would suggest all clients speak to their lender about it.

Have another question about homeowner's insurance? Ask in the comments below.

Mark Twynham has been with the Bank of Montreal since 1981, the last six of which as an Area Manager in the Greater Toronto Area. He currently manages a team of 27 Mortgage Specialists.