Mortgage Protection Insurance: What It Is and When You Might Need It
Mortgage protection insurance pays off your mortgage if you die. But for most people, term life insurance is a better deal.
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The promise of mortgage protection insurance (MPI) — also known as mortgage life insurance — is simple and appealing. When you die, the policy pays off your mortgage, and your loved ones can keep the house.
But MPI isn't necessarily the best way to achieve that goal. For many people, a term life insurance policy can be a cheaper, more flexible option.
How does mortgage protection insurance work?
Mortgage protection insurance is a type of life insurance that pays off the balance of your mortgage when you die. The life insurance death benefit from an MPI policy typically decreases as you pay off your mortgage, while your premiums stay the same.
You might also see mortgage protection insurance referred to as “mortgage life insurance” or “mortgage protection life insurance.”
Mortgage life insurance is typically sold by mortgage lenders, and they're the ones who get paid if you die. (This is different from a normal life insurance policy, where the death benefit goes to your chosen beneficiaries, like your family members.)
Did you know...
Mortgage life insurance is similar to decreasing term life insurance, except your lender — not your loved one — gets the payout if you die while the policy is in effect. How much does mortgage protection insurance cost?
The cost of mortgage protection insurance can vary, but it often ranges from around $20 to $100 or more per month. MPI premiums are based largely on your loan amount, so the more you borrow, the higher your premiums will be. Your age and your loan repayment term also influence the cost of MPI.
To compare, a 20-year, $500,000 term life insurance policy would set you back $26 a month, according to Policygenius, a life insurance brokerage. This sample rate is based on a healthy 40-year-old, and could also cover an outstanding balance on your mortgage if you die unexpectedly.
» MORE: Average life insurance rates
Pros and cons of mortgage protection insurance
Mortgage protection insurance has limited advantages and serious drawbacks, especially compared to other types of coverage, like term life insurance.
Pros
Convenience. Mortgage protection insurance aligns with your loan balance and pays the lender directly.
No medical exam. In most cases, you're not required to take a life insurance medical exam to qualify for coverage.
Cons
Lack of flexibility. MPI pays the lender, so your family won’t have the freedom to spend the money as they like.
Declining payout. While premiums stay the same, the payout decreases as you pay down your mortgage.
Higher premiums. Premiums for MPI are often much higher than term life insurance.
Who is mortgage protection insurance for?
You might want to consider mortgage protection insurance if your goal is to deal with mortgage debt and help loved ones keep the house after you die. Here’s some guidance on whether or not mortgage life insurance is worth it for you:
Healthy homeowner: Probably not.
If you’re in decent health, applying for term life insurance might be a cheaper way to accomplish the same goal.
Homeowner with medical issues: Maybe.
Because it generally doesn’t require a medical exam, mortgage protection insurance could be a good fit for people who don’t qualify for traditional term life insurance. If your health would disqualify you from term life insurance or leave you paying high premiums, mortgage protection insurance can help your family cover the cost of your mortgage when you die.
Mortgage protection insurance vs. term life insurance
A term life insurance policy typically provides more bang for your buck than a mortgage life insurance policy. That’s because term life allows you to choose your coverage amount and policy length, and offers level premiums and death benefits. Plus, the payout can be used for any purpose. If your family wants to use the money to pay off the mortgage, they can, but they’re not forced to.
In short, term life offers most of the benefits of mortgage protection insurance but with lower premiums, more flexibility and more control.
» MORE: Compare life insurance quotes
Is mortgage protection insurance required?
You don't need to buy mortgage protection insurance. However, there are other types of insurance that can be mandatory for certain home loans, such as private mortgage insurance.
What’s the difference between MPI, PMI and MIP?
With similar abbreviations, mortgage protection insurance, private mortgage insurance and mortgage insurance premium can be easy to mix up. Here's a bit about each:
| Mortgage protection insurance (MPI) | Mortgage insurance premium (MIP) | ||
|---|---|---|---|
| Is it required? | No. | Yes, for conventional loans with a down payment below 20%. | Yes, for FHA loans. |
| Who does it protect? | The borrower’s family. MPI helps ensure your loved ones can stay in the house if you pass away. | The lender. | The lender. |
| How does it pay? | MPI pays off the mortgage directly with the lender if the borrower dies. | PMI pays off the lender if the borrower defaults. | MIP pays off the lender if the borrower defaults. |
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Frequently Asked Questions
Is mortgage protection insurance worth it?
In many cases, term life insurance is a better match for most people because it offers flexibility and can provide funds for beneficiaries to balance mortgage payoff and other financial responsibilities. However, If you’ve been denied term or whole life insurance for medical reasons, you may want to consider mortgage life insurance.
Do I need mortgage protection insurance?
Mortgage protection insurance isn’t required and most people will find more value and flexibility with other life insurance policies, like term life insurance.
What does mortgage protection insurance cover?
Mortgage life insurance pays the outstanding balance on your home loan directly to the lender if you die before paying it off.
Can you cancel mortgage protection insurance?
You can generally cancel mortgage protection insurance at any time, but you may have to pay a penalty or cancellation fee. Check with your insurer for your specific policy’s terms and conditions and information on how to cancel.
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