What is mortgage protection insurance & how does it work?

Mortgage protection insurance pays off the balance on your mortgage to your lender if you die. For most people, term life insurance can be a cheaper way to accomplish this goal while maintaining more flexibility.

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Katherine MurbachEditor & Licensed Life Insurance AgentKatherine Murbach is a life insurance and annuities editor, licensed life insurance agent, and former sales associate at Policygenius. Previously, she wrote about life and disability insurance for 1752 Financial, and advised over 1,500 clients on their life insurance policies as a sales associate.&Tory CrowleyAssociate Editor & Licensed Life Insurance AgentTory Crowley is an associate life insurance and annuities editor and a licensed insurance agent at Policygenius. Previously, she worked directly with clients at Policygenius, advising nearly 3,000 of them on life insurance options. She has also worked at the Daily News and various nonprofit organizations.

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Antonio Ruiz-CamachoAntonio Ruiz-CamachoAssociate Content DirectorAntonio helps lead our life insurance and disability insurance editorial team at Policygenius. Previously, he was a senior director of content at Bankrate and CreditCards.com, as well as a principal writer covering personal finance at CNET.
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Patrick Hanzel, CFP®Patrick Hanzel, CFP®Certified Financial Planner™ & Advanced Planning ManagerPatrick Hanzel, CFP®, is a certified financial planner and advanced planning manager at Policygenius. His expertise has been featured at Lifehacker, Consumer Affairs, Authority Magazine, Thrive Global, and Fatherly.

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What is mortgage life insurance?

Mortgage protection insurance (MPI), also known as mortgage life insurance, is a policy designed to cover your mortgage balance if you die before paying it off. The premiums you pay will be the same every month (or year, if you pay annually), but the amount of the policy’s payout will go down over time, as your loan balance goes down. 

Unlike traditional life insurance policies, that pay out to your chosen beneficiaries when you die, an MPI policy only pays out to your lender. For that reason, mortgage life insurance offers less flexibility than a traditional life insurance policy.

Key takeaways

  • Mortgage life insurance is similar to a traditional term life insurance in that you buy a policy, pay regular premiums, and at the end of your policy term, your coverage ends.

  • Unlike traditional term life, the beneficiary of an MPI is the lender, not your family or someone that you choose, so the lender receives the death benefit. The payout can’t be used for any purpose other than paying off your mortgage. 

  • For most people, term life insurance offers more robust coverage than MPI — and can also be used to pay off your mortgage in the event of your death.

How does mortgage protection insurance work? 

Mortgage life insurance is designed to cover the balance on your mortgage if you die before paying it in full. 

  • The payout from the policy decreases over time as your mortgage balance goes down.

  • The policy pays out to your lender, not to your beneficiaries.

  • MPI policies are generally sold by mortgage lenders and banks — only a few life insurance companies sell them.

  • People usually get MPI when it’s required by their mortgage lender. 

Is mortgage protection insurance required?

You may not need mortgage protection insurance specifically, but depending on your down payment and the amount of your mortgage, your lender may require you to take out some form of insurance. But if this is the case for you, MPI likely won’t be your only option. 

“There is a misconception that, when a lender requires MPI, they will only accept MPI,” said Elia Weg, a certified financial planner and advanced planning associate at Policygenius. More often than not, Weg explained, if you have a traditional life insurance policy — either term or permanent — the lender will accept it as collateral. What the lender needs is guarantee that your mortgage will be paid in full if you die while still having a balance on your loan.

Mortgage life insurance: pros & cons

MPI covers your mortgage directly and doesn’t require underwriting, but it provides less flexibility than a traditional life insurance policy and can be more expensive depending on your circumstances.

Advantages of mortgage life insurance

  1. It makes paying off your mortgage easier. Leaving your loved ones a large sum of money can be overwhelming for them, especially if you have multiple financial obligations to cover. You might need MPI “depending on the circumstance and what you’re interested in as a death benefit,” said Janet Ruiz, CPCU, AIM, and director of strategic communications at the Insurance Information Institute. “Mortgage insurance is strictly for whatever is left on your mortgage.”

  2. There’s no underwriting required. MPI policies allow you to skip the medical underwriting process, which insurers use to assess your insurance risk (and usually requires taking a medical exam). If you have adverse health issues, skipping underwriting could result in lower insurance costs.

Disadvantages of mortgage insurance

  1. It offers limited financial protection. The death benefit from an MPI goes straight to your mortgage lender, not your family, so they wouldn’t be able to use the payout for any other debts or bills. A regular term life insurance policy allows you to cover your mortgage, plus any other expenses.

  2. There are cheaper options available. If you have few or no health issues, MPI will be more expensive than a comparable term life insurance policy. So you’ll basically be paying higher premiums for less flexible coverage.

Ready to shop for term life insurance?

What are the main differences between MPI & term life insurance?

Mortgage protection insurance and term life insurance are similar in that both require you to pay a set premium for your policy. With both types of insurance, if you die while your policy is active, the death benefit may be used to cover your outstanding mortgage. But how much and to whom the policy pays out are the two main differences between MPI and term life.

  • The beneficiary: With mortgage protection insurance your lender is your beneficiary, while with term life, you can designate whoever you want to receive the payout. The beneficiary of a term life insurance policy can use the death benefit to cover all financial responsibilities in addition to a mortgage, including replacing lost income, covering bills, and paying for your end-of-life costs. It can also cover other housing expenses that are usually not covered by an MPI, including HOA fees, property taxes, and homeowners insurance.

  • The death benefit: Your MPI death benefit decreases as you pay off your mortgage, while term life policies most commonly have a level death benefit. This means that the coverage amount of term life insurance stays the same for the entire duration policy.

Learn more about life insurance beneficiaries

What are the main differences between MPI & other mortgage insurance policies?

MPI vs. PMI

Mortgage protection insurance is often confused with private mortgage insurance (PMI). Lenders require you to purchase PMI if you make a down payment of 20% or less on your home and add the PMI’s premiums to your regular mortgage balance.

MPI vs. MIP

Mortgage insurance premium (MIP) is a type of mortgage insurance that is required if you’re buying a house using a Federal Housing Administration (FHA) loan. [1]

It has two parts you have to pay: an upfront fee and an annual fee, which is divided by 12 and then included in your regular mortgage payments. 

The goal of MIP is to protect any FHA-backed lender if you can’t back the loan, which is similar to MPI in that it protects the lender if you die before paying off your mortgage.

When does it make sense to buy MPI?

If certain aspects of your health and lifestyle profile — like having health conditions or a risky occupation — would make term life insurance cost-prohibitive for you, MPI might be a more affordable option to protect your mortgage debt. 

There’s no medical exam or medical underwriting required for mortgage insurance, so your health won’t have an impact on the cost of your policy. MPI may be cheaper for older adults as well, since term life insurance gets more expensive as we age.

Generally speaking, if your only concern is making sure your mortgage gets paid off, mortgage life insurance could be a good fit.

When does it make sense to buy term life insurance?

If you have few health conditions, don’t have a high-risk occupation, or have financial responsibilities other than a mortgage — like children’s expenses or credit card debt — term life insurance is likely going to be a better option for you.

“There are also options to convert term life into whole life insurance,” Ruiz of the Insurance Information Institute said. Whole life insurance is a type of permanent life insurance that never expires and comes with a separate cash value account that grows over time and can be used while you’re still alive. However, whole life is significantly more expensive than term life. 

“Term life is super important for any individual — they can have college loans, they may be married and have kids, they may be single and have credit card loans,” Ruiz said. “Term life insurance makes sense for most people, but some people want both” term life and whole life coverage.

Ready to shop for life insurance?

Where do you buy mortgage protection insurance? 

There are a few different ways you can shop for mortgage life insurance, although fewer companies offer this product when compared to traditional term life insurance. 

  • Through a bank or a mortgage lender: You can often shop for a policy directly from your mortgage lender. You can ask for options while you’re finalizing your mortgage loan.

  • Through a private insurance company: Some private insurance companies offer mortgage life insurance in addition to traditional term life, so an agent can walk you through their company’s product offerings.

  • Through a life insurance provider: Some brokers work with a variety of life insurance companies, so this can be a good starting point to compare quotes. You can compare MPI quotes against term life insurance quotes, too. (Policygenius doesn’t offer MPI, but many of our partners do offer term life policies.)

It’s best to shop around and compare prices before purchasing insurance to make sure you’re getting the best coverage for the lowest price. Consulting a financial advisor or life insurance professional is a good first step.

Average life insurance cost per month

Is mortgage protection worth it?

If you need to guarantee your mortgage is covered if you die — especially if you have a serious health condition or a risky occupation — mortgage life insurance may be worth it. Otherwise, a term life insurance policy likely will provide more flexibility at a cheaper cost.

“There are people who do both [MPI and term life] because they want to make sure that their mortgage gets paid off. It can also depend on who the beneficiaries are,” Ruiz said. “[It’s ultimately] up to what type of protection and how much [coverage] you want.”

If you’re not sure which type of life insurance is best for your situation, speaking with an independent broker can help. At Policygenius, our experts are licensed in all 50 states and can walk you through the entire life insurance buying process while offering transparent, unbiased advice.

Other types of life insurance

References

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  1. Capital One

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    What are mortgage insurance premiums (MIPs)?

    ." Accessed March 28, 2024.

Authors

Katherine Murbach is a life insurance and annuities editor, licensed life insurance agent, and former sales associate at Policygenius. Previously, she wrote about life and disability insurance for 1752 Financial, and advised over 1,500 clients on their life insurance policies as a sales associate.

Tory Crowley is an associate life insurance and annuities editor and a licensed insurance agent at Policygenius. Previously, she worked directly with clients at Policygenius, advising nearly 3,000 of them on life insurance options. She has also worked at the Daily News and various nonprofit organizations.

Editor

Antonio helps lead our life insurance and disability insurance editorial team at Policygenius. Previously, he was a senior director of content at Bankrate and CreditCards.com, as well as a principal writer covering personal finance at CNET.

Expert reviewer

Patrick Hanzel, CFP®, is a certified financial planner and advanced planning manager at Policygenius. His expertise has been featured at Lifehacker, Consumer Affairs, Authority Magazine, Thrive Global, and Fatherly.

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