What is Mortgage Protection?
Protecting your home and ensuring your family's financial security is crucial. Mortgage Protection Insurance (MPI) is designed to safeguard your home in the event of unforeseen circumstances. It is a type of life insurance that specifically covers your mortgage balance if you pass away during the policy term. This coverage helps ensure that your loved ones can remain in your home without the burden of mortgage payments.
With MPI, you can have peace of mind knowing that your mortgage will be paid off directly to the lender, alleviating financial stress and providing stability for your family. Unlike traditional life insurance, MPI aligns with your mortgage term and offers coverage that decreases over time as your mortgage balance decreases, making it a focused and often more affordable option for homeowners.
How Does It Work?
Mortgage Protection Insurance (MPI) ensures your mortgage is paid off if you pass away during the policy term, keeping your family in their home. You choose a policy that matches your mortgage term, like 15, 20, or 30 years. Applying is easy and often doesn't require a medical exam.
Once approved, you pay regular premiums. If you die during the policy term, the insurance pays the remaining mortgage balance directly to your lender, so your family doesn't have to worry about mortgage payments. Some policies also offer extra coverage if you become seriously ill or disabled, helping with your mortgage payments during tough times.
Key Features
Purpose
Pays off your remaining mortgage balance if you pass away during the policyterm.
Policy Term
Matches the term of your mortgage (e.g., 15, 20, or 30 years).
Premiums
Regular payments that can be fixed or variable depending on the policy.
Easy Qualification
Often does not require a medical exam, making it easier to qualify.
Direct Payout
Benefits are paid directly to the mortgage lender, not to your family or other beneficiaries.
MPI vs PMI
Keep in mind that there are different types of mortgage insurance. MPI isn’t the same thing as private mortgage insurance (PMI). PMI is a type of protection that safeguards the owners of your home loan if you stop paying your mortgage.
Many homeowners assume that their PMI will cover their mortgage payments if they die; this assumption is incorrect. As the borrower, PMI doesn’t afford you any type of protection if you pass away unexpectedly. If you can’t pay your mortgage and you have PMI, your home will likely go into foreclosure.
Bottom Line
Whether you might want to buy MPI largely depends on your specific needs. If you are a homeowner with underlying health conditions that could affect your long-term well-being, are employed at a high-risk job, or are a young person having difficulty getting approved for a life insurance policy, MPI could be a great way to provide you and your loved ones with peace of mind.
However, if you think your family would benefit more from being able to use money from a posthumous insurance payout for things other than your mortgage – like bills, taxes, or funeral costs – it might make more sense to pursue a traditional life insurance policy.