If you have a mortgage, there’s a good chance you’ve heard of mortgage protection life insurance.
But here's the thing:
If you’re like most new homeowners, you don’t know what this is or if it’s something worth your money.
In this article, we’ll take a look at the features of a mortgage protection insurance policy to help you determine if one of these policies might be right for you.
What Is Mortgage Protection Insurance?
Mortgage protection insurance (MPI) is a type of life insurance that was created to help you pay off your mortgage if you were to pass away before it was paid off.
Like most life insurance policies, if you pass away during the term of your policy, the policy pays out. If you outlive the term of the policy, it ends.
Is Mortgage Protection Life Insurance Required?
No, there’s no requirement for Mortgage protection insurance under any circumstances.
However, it’s not uncommon to confuse Mortgage protection Insurance (MPI) with Private Mortgage Insurance (PMI).
While they both sound very similar, they are very much completely different products.
Mortgage Protection Insurance - Pays out a death benefit that covers your mortgage if you were to pass away. You get to decide if you would like this coverage or not to protect your family.
Private Mortgage Insurance - Insurance that protects the lender if you were to default on your loan or if the house isn't enough to repay the debt in full through a foreclosure sale. This coverage is usually required before you can close on your home if you are putting down less than 20%.
How Long Should Life Insurance For My Mortgage Last?
In most cases, mortgage protection policies reflect the term of your mortgage.
So, if you have a 30-year mortgage, your policy will probably be for 30 years. And if you have a 15-year mortgage, your mortgage life policy would also be for 15 years.
And as we stated above, since these polices aren't required it's totally up to you on how long to keep them.
How Does The Death Benefit Work For Mortgage Life Insurance?
Many (but not all) Mortgage Protection insurance policies are decreasing term policies.
Decreasing term means that after the first few years, usually 5, the benefit amount starts to decrease as the amount remaining on your mortgage decreases.
In comparison, term life insurance policies will have a guaranteed level death benefits and monthly premiums for the life of your policy.
How Will My Beneficiary Pay Off My Mortgage?
When you purchase a regular term life insurance policy, your beneficiaries will receive the funds and use them as needed after you die—whether that be toward final expenses, mortgage payments, or to save for their futures.
However, But with a mortgage protection life policy, your benefit will go straight to the lender to pay for your mortgage, which means your loved ones won’t have access to funds.
If you have other debts, your family will need to find another source of money to cover them. This is one of the primary reason we recommend either traditional life insurance or no-medical exam life insurance.
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Pros Of Mortgage Protection Insurance
Let’s take a look at some of the major pros of a life insurance policy for your mortgage:
Mortgage protection: Your mortgage is likely your biggest debt, and it’s a debt your family will need to take on if you pass away before you’ve paid it off. An Mortgage life policy is a way to protect and provide for your loved ones after you’re gone.
Simple qualifications: You won’t need to undergo a physical or answer any in-depth health questions to qualify for a mortgage protection insurance policy. It’s a simple way for people who don’t qualify for other types of life insurance to get a policy.
Returned premiums: If you don’t file a claim and have finished paying off your mortgage, some insurance policies will return your premiums to you through an optional rider. That’s valuable cash, back in your pocket for other uses.
Solid supplement: An Mortgage life policy is a nice supplement to your regular term life insurance policy if it’s affordable. If you were to pass away, your policy would pay off your mortgage, while the benefit from your term life policy would support your family and pay off your other debts.
Cons Of Mortgage Protection Insurance
While there are some good aspects to Mortgage protection policies, there are also some drawbacks you’ll need to keep in mind.
Mortgage protection insurance cost: Because they’re guaranteed issue, most MPI policies have higher premiums than standard term life insurance policies. There is honestly no real reason to purchase these policies over a traditional life policy.
Premiums are not fixed: When you purchase a term life insurance policy, you’ll have fixed premiums—meaning you pay the same amount every month for the duration of your policy. Mortgage life plans often only have fixed premiums for the first few years of the term, so you might end up paying significantly more over time.
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Is Mortgage Protection Insurance Worth It?
Mortgage protection insurance can be worth it in some circumstances.
If you are unable to medically qualify for a traditional life insurance policy then this would be one of the best ways to protect your mortgage.
However, in all honesty, for most people, mortgage protection insurance won’t be worth it when compared to regular life insurance.
Unfortunately, these policies don’t offer the flexibility to cover those costs, and healthy individuals can get a substantially larger term life insurance policy at a better rate.
Mortgage Life Insurance Policy Alternatives
If you’re looking for an alternative to a mortgage protection policy, and want to get covered fast, then you should consider an instant term life insurance policy.
If you’re willing to undergo a medical exam and have your health history reviewed, you should look into purchasing a traditional term life insurance policy.
Term life insurance policies are typically the best value for your money, offering higher benefit amounts and fixed premiums.
Are you worried about your current health impacting your chances of qualifying for a regular term life insurance policy? Then you should seek out a guaranteed issue policy. This option should definitely be your last resort.
These policies don’t require a medical exam, and in many cases, only require you to answer a handful of qualifying questions to be approved for coverage.
Mortgage Protection Life Insurance Riders
Many companies offer customers riders to enhance their mortgage protection policy. These might include:
THE SIMPLY INSURANCE WAY
No Exam Life Insurance made easy.
Agents not required.
Get quotes and sign up online without talking to an agent. But, we are here if you need us.
Unbiased, expert advice.
Get unbiased insurance education from licensed experts and also avoid dodgy sales calls.
Coverage in minutes.
You can get no exam life insurance coverage within minutes of getting your quotes and applying.
Taking Action
If you’re not able to qualify for other types of life insurance, a mortgage protection life insurance policy might be what you need to protect your loved ones after you pass away.
If you do decide this type of policy is right for you, be sure to make a mortgage protection insurance comparison to find the best rates.
If you prefer traditional no exam life insurance, you can get immediate quotes and apply for coverage by clicking here or on any of the above buttons.
Frequently Asked Questions
How much is mortgage life insurance monthly?
On a $120,000 mortgage you would pay about $50 per month for a bare minimum policy. Over time the policy death benefit will decrease as you pay down your mortgage balance.
Is mortgage protection life insurance worth it?
Mortgage protection life insurance isn't worth it for most people because of the high cost and decreasing term benefit. However, if you can't get traditional life insurance and you have a mortgage, it might be worth looking into.
Is mortgage protection insurance the same as life insurance?
Mortgage protection insurance is the same as life insurance. However, a mortgage life insurance policy functions a bit differently in who it pays out to (directly to lender), the underwriting process (guaranteed issue) and the monthly premiums (usually higher).