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 death benefit from a MPI policy decreases as you pay down your mortgage, but the premiums you pay stay the same.
Unlike traditional life insurance policies, that pay out to your beneficiaries when you die, an MPI policy only pays out to your lender. For that reason, mortgage life insurance is a much more limited coverage option than a traditional life insurance policy.
How does mortgage protection insurance work?
Mortgage life insurance (sometimes referred to as mortgage protection insurance, or MPI) 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 that doesn’t mean that an MPI policy is 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
Disadvantages of mortgage insurance
What are the main differences between MPI & life insurance?
Mortgage protection insurance and term life insurance are similar in that both require you to pay a set premium for coverage. 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 final expenses. 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 life of the policy.
→ Learn more about life insurance beneficiaries
What are the main differences between MPI, PMI & MIP?
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 you have health conditions or a risky occupation, MPI might be the more cost-effective option to protect a 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 main 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, and have other financial responsibilities you want covered in your absence — like children’s expenses or credit card debt — term life insurance is likely going to be the better option.
“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.
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.)
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’re looking 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 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
Frequently asked questions
How does mortgage life insurance work?
Mortgage protection life insurance pays out to your mortgage lender when you die. You pay the same premiums for the duration of the policy, but the death benefit decreases as you pay down your mortgage.
Is mortgage protection insurance the same as life insurance?
While it’s technically a type of life insurance, mortgage protection insurance only pays out to your lender and the amount and term is tied to your mortgage. A traditional 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 life insurance insurance is usually more expensive than a comparable term life insurance policy, unless you have numerous health issues, are older, or participate in hazardous activities.
For example, a 30-year-old would pay on average $60 a month to cover a $500,000 mortgage over 30 years. Meanwhile, the same 30-year-old would pay on average about $38 per month for a $500,000, 30-year term life insurance policy if they have few health conditions.
