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Two products that can both pay off your mortgage.
Mortgage protection insurance is a type of term life insurance that covers your monthly mortgage payments if you die. It's narrower than a traditional term life insurance policy, which covers a variety of expenses via a tax-free lump sum of cash (known as the death benefit) paid to a loved one after your death.
Mortgage protection insurance, or MPI, covers your monthly mortgage payments — and only your monthly mortgage payments — if you die. It's meant to protect your family from having to sell or lose their home due to the loss of your income.
Important side note: Mortgage protection insurance is different from private mortgage insurance (PMI), which protects your lender and is something you have to pay if you put less than 20% down on a home. Mortgage protection insurance, conversely, is a policy you may opt to buy. PMI basically ensures your mortgage lender won't lose all their money if you stop making payments on the loan.
Broadly, term life insurance is a type of life insurance that covers you for a set period of time — as opposed to your whole life. That's permanent or whole life insurance.
Read more about the differences between term life and whole life.
Our experts can help you choose the right type of life insurance for your needs.
Given that mortgage protection insurance is a type of term life insurance, the policies fundamentally operate the same way. You buy a policy for a set period of time, make monthly payments (premiums), and, in the event of your death, have a death benefit paid out to your beneficiary.
But, beyond that, there are a few big differences between MPI and traditional term life. The first one we mentioned already: Mortgage protection insurance only covers your mortgage, while regular term life insurance covers all of your expenses (up to your coverage limits).
The largest difference is who the funds get paid to upon your death. With mortgage protection insurance, the money gets paid directly to your lender. Under a traditional term life policy, you get to name a beneficiary.
Also different: Mortgage insurance is tied to the balance on your mortgage — meaning the death benefit decreases in tandem, even though there's a good chance your premiums will remain the same.
Mortgage protection insurance is usually more expensive than standard term life. That's also due to the fact that applicants are exempt from having to take a paramedical exam. MPI is what's known as a guaranteed approval policy, meaning you can qualify without having to go through standard underwriting.
For most people, term life insurance is a better option than mortgage protection insurance. Here’s why:
Term life covers more than just your mortgage payments Your beneficiaries can essentially use the death benefit for whatever they need. But even beyond that, traditional term life policies offer a lot more flexibility.
You can choose your benefit amount with term life With mortgage protection insurance, you are restricted by the size of your mortgage.
You have more options when it comes to setting the length of your policy. MPI usually comes in 15- or 30-year terms (just like a mortgage), while term life policies have shorter or longer terms depending on your needs.
Cost savings MPI policies almost always cost more than traditional term life.
There is one situation when to consider mortgage protection insurance could be the better option: if you can't qualify for a standard term life insurance policy. That's because with MPI you get to skip the medical exam that's a key part of term life underwriting. It'll cost you in premiums, because no-medical-exam life insurance is generally more expensive than standard life insurance, given the risk the carrier is taking insuring you sight unseen. But given how major mortgage debt can be, MPI is better than nothing.
You can go here to compare life insurance quotes and find the best policy for you.
If you're considering MPI, it’s important to research carriers. Not all insurers are created equal and — in fact — some of those offers flooding your mailbox post-home purchase might not be legit or even reasonably affordable.
Here are some steps to take when shopping for MPI.
Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.
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Yes, we have to include some legalese down here. Read it larger on our legal page. Policygenius Inc. (“Policygenius”) is a licensed independent insurance broker. Policygenius does not underwrite any insurance policy described on this website. The information provided on this site has been developed by Policygenius for general informational and educational purposes. We do our best efforts to ensure that this information is up-to-date and accurate. Any insurance policy premium quotes or ranges displayed are non-binding. The final insurance policy premium for any policy is determined by the underwriting insurance company following application. Savings are estimated by comparing the highest and lowest price for a shopper in a given health class. For example: for a 30-year old non-smoker male in South Carolina with excellent health and a preferred plus health class, comparing quotes for a $500,000, 20-year term life policy, the price difference between the lowest and highest quotes is 60%. For that same shopper in New York, the price difference is 40%. Rates are subject to change and are valid as of 2/17/17.
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