Q

What is mortgage protection insurance (MPI)?

A

Mortgage protection insurance is life insurance with a decreasing benefit that only pays out to your lender to cover your mortgage debt.

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Nupur Gambhir

Nupur Gambhir

Senior Editor & Licensed Life Insurance Expert

Nupur Gambhir is a licensed life, health, and disability insurance expert and a former senior editor at Policygenius. Her insurance expertise has been featured in Bloomberg News, Forbes Advisor, CNET, Fortune, Slate, Real Simple, Lifehacker, The Financial Gym, and the end-of-life planning service Cake.

 & Rebecca Shoenthal

Rebecca Shoenthal

Editor & Licensed Life Insurance Expert

Rebecca Shoenthal is a licensed life, disability, and health insurance expert and a former editor at Policygenius. Her insights about life insurance and finance have appeared in The Wall Street Journal, Fox Business, The Balance, HerMoney, SBLI, and John Hancock.

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Patrick Hanzel, CFP®

Patrick Hanzel, CFP®

Certified Financial Planner™ & Advanced Planning Team Lead

Patrick Hanzel, CFP®, is a Certified Financial Planner™ and Advanced Planning Team Lead at Policygenius. His expertise has been featured at Lifehacker, Consumer Affairs, Authority Magazine, Thrive Global, and Fatherly.

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Outstanding debt, such as a mortgage on your home, is the main reason many people get life insurance. Mortgage protection insurance, or MPI, is life insurance designed to pay off your remaining mortgage when you die. Unlike other types of life insurance, MPI only pays the death benefit to your mortgage lender making it a much more limited option than a traditional life insurance policy.

MPI is not the same as private mortgage insurance (PMI), which may be required by your lender. We recommend a 15-, 20-, or 30-year term life insurance policy for homeowners over MPI because it can cover far more expenses and pay out to your family.

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What is mortgage protection insurance?

Mortgage protection insurance is life insurance that covers your remaining mortgage payments when you die.

MPI is broadly similar to term life insurance in how it works. You buy a policy, pay regular premiums, and at the end of the policy term, your coverage ends. If you die during the term of the policy, a death benefit is paid out to your beneficiary.

However, mortgage protection life insurance has two key differences from term life insurance:

  1. Beneficiary: The mortgage company or lender is your policy's beneficiary, not your family.

  2. Death benefit: The death benefit decreases over time as you make mortgage payments, similar to a decreasing term life insurance policy. Most term life policies have level benefits that always stay the same.

Term lengths: Mortgage protection insurance vs. term life

The term lengths for term life insurance policies are fairly flexible and you can choose term lengths in five- and 10-year intervals. Some insurance companies even allow custom term lengths.

However, MPI term length usually matches your mortgage length: 15 or 30 years. Your term length may also be limited by your age.

Private mortgage insurance (PMI)

MPI differs from PMI, which lenders require you to purchase if you make a down payment of 20% or less. Lenders then add any premiums to your regular mortgage balance. Private mortgage insurance protects the lender if you default, but it won’t help your family if you die before your mortgage is paid off.

Permanent life insurance

If you need more coverage than both MPI and term life insurance offer, permanent life insurance is worth considering. Permanent insurance lasts for your entire life and usually come with a cash value account that earns interest. Policies are more expensive than term and MPI policies, but can be worthwhile if you know you'll have dependents for life.

Is mortgage protection insurance worth it?

MPI is worth getting if you can't get a life insurance policy due to age or health issues. Look into different mortgage protection companies before signing up with your mortgage lender to make sure you're getting the best deal. But first, see if you’re eligible for a traditional term life insurance policy.

For most people, a term life insurance policy is the better option. It’s more affordable, provides more protection, and allows for more flexibility than MPI policies do. Even if you think an affordable policy is out of reach because of your health, it’s worth getting a free quote.

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Mortgage protection insurance: pros and cons

Pros

  1. Takes the guesswork out of paying off a mortgage Receiving a lump sum of money from a traditional term policy can be overwhelming. MPI is matched up to the mortgage balance and the money will go only toward that.

  2. No underwriting Some MPI policies allow the policyholder to skip the underwriting process. Since life insurance rates are largely determined by the health of the applicant, skipping underwriting could result in higher premiums, but it can be worthwhile if poor health would raise the premiums of a standard term life insurance policy even more.

Cons

  1. Less financial protection Being able to cover mortgage payments is great, but you’re doing so at the expense of your family’s other debts and bills. A regular term life insurance policy allows you to cover your mortgage, plus other expenses.

  2. There are cheaper options available MPI is more expensive (typically more than double) than a typical term life insurance policy for an applicant in excellent health.

Mortgage protection insurance protects your family’s housing if you die prematurely and haven't paid off your mortgage. But because it doesn’t cover other vital costs, such as bills and everyday expenses, it’s best to buy a traditional term life insurance policy instead. If you are ineligible for traditional life insurance coverage, a mortgage protection insurance plan is a good backup.

Frequently asked questions

How does mortgage life insurance work?

Mortgage protection life insurance pays out to your mortgage lender when you die. You pay premiums and the death benefit decreases alongside your mortgage.

Is mortgage protection insurance the same as life insurance?

No. Mortgage protection insurance only pays out to your lender and the amount and term is tied to your mortgage. A life insurance policy covers any expenses and pays out to whoever you want, with flexible coverage options.

What is the average cost of mortgage protection insurance?

Mortgage protection insurance is generally double the cost of a comparable term life insurance policy.