Mortgage protection insurance (MPI) is a life insurance policy with a decreasing death benefit designed to pay off your mortgage balance in your absence. Unlike other types of life insurance, an MPI policy only pays out to your lender, making it a much more limited option than a traditional life insurance policy to cover your mortgage if you die before paying it off.
What is mortgage life insurance?
The phrase mortgage life insurance is used interchangeably with mortgage protection insurance. Mortgage protection is a type of life insurance because you pay your premiums while you’re alive, and the benefit is redeemable when you die.
What does mortgage life insurance cover?
Mortgage insurance covers your remaining mortgage balance if you were to die before paying it off.
Unlike traditional term life insurance, the face amount goes directly to your lender, rather than your family, so this type of insurance can’t be used for any other purpose. The death benefit also decreases as you pay your mortgage off — it’s directly tied to your loan balance.
How does mortgage protection work?
Mortgage protection insurance 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. In the case of MPI, the beneficiary is your lender.
Do you need mortgage protection insurance?
You may not need mortgage protection life 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.
“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, if someone has a life insurance policy, a collateral assignment would satisfy the lender.”
In other words, if you’re looking to protect your home and provide proof of liquidity as a borrower, you could turn to a number of financial products, including traditional term or permanent life insurance, instead of MPI.
MPI vs. PMI
Mortgage protection insurance is not the same as 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 any premiums to your regular mortgage balance.
MPI vs. MIP
Mortgage insurance premium (MIP) is required if you’re buying a house using a Federal Housing Administration (FHA) loan. [1] The borrower will pay an upfront fee, as well as a fee combined into their regular mortgage payments.
The goal of MIP is to protect the lender against any lapsed payments, which is similar to MPI in that it protects the lender if you die before paying off your mortgage.
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Mortgage protection insurance: pros and 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
Takes the guesswork out of paying off a mortgage. Receiving a lump sum of money from a traditional term policy can be overwhelming, especially if your beneficiaries have multiple financial obligations to cover in your absence. “[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.”
No underwriting required. MPI policies allow the policyholder to skip the medical underwriting process, which insurers use to assess your insurance risk. Since life insurance rates are largely determined by your health, skipping underwriting could result in higher premiums if you have minimal health complications, but it can be worthwhile if you have health conditions that would raise the premiums of a standard term life insurance policy further.
Disadvantages of mortgage insurance
Less financial protection. The money goes straight to your mortgage lender, not your family, so they wouldn’t be able to use the benefit for any other debts or bills. A regular term life insurance policy allows you to cover your mortgage, plus any other expenses.
There are cheaper options available. MPI is more expensive than a typical term life insurance policy for an applicant with few health complications.
How much does mortgage life insurance cost?
A 30-year-old applying to cover a $500,000 mortgage over 30 years can expect to pay roughly $60 per month according to sample rates estimated by the U.S. Department of Veteran Affairs. [2]
Mortgage protection insurance tends to cost more than a comparable term policy for many people. A term life insurance with the same death benefit payout and duration could cost the same person $32 per month if they have few health conditions.
“[MPI] can be more expensive than term life insurance. That said, that can depend on a couple circumstances: mainly age, health, and occupation” said Ruiz. “Folks who either have health issues, are maybe in the 50+ bracket, [or] someone young who has a risky or dangerous profession... could make the term life insurance possibly cost more than the mortgage insurance.”
Where to buy mortgage protection insurance
There are a few different ways you can shop for mortgage life insurance if need be, although fewer companies offer this product when compared to traditional term life insurance.
Through 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 against term life insurance quotes, too. (Policygenius doesn’t offer MPI, but many of our partners do offer term life policies.)
It’s still advisable to shop around and compare prices before purchasing. Consulting a financial advisor or life insurance professional is a good first step, so you can be certain which product is best for your specific situation.
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Mortgage life insurance vs. term life insurance
Mortgage life insurance and term life insurance are similar in that both require you to pay a set premium for coverage. 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 life insurance your lender is your beneficiary, while with term, you can designate anyone you want as the beneficiary as long as there’s insurable interest — for instance a spouse, child, or any other family member. The beneficiary of a term life insurance policy can use the death benefit for all financial responsibilities in addition to a mortgage, including replacing lost income, covering bills, and paying for final expenses.
The death benefit: Your MPI death benefit decreases as you pay off your mortgage, while term policies most commonly have a level death benefit. This means that your coverage amount stays the same for the entire life of the policy.
When it makes 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 for mortgage insurance, so health conditions don’t have the same impact they have on term insurance premiums. MPI may be cheaper for older adults as well, since term life gets more expensive as we age.
Generally speaking, if your primary concern is making sure your mortgage gets paid off and cost isn’t your primary concern, mortgage life insurance might be a good fit.
When it makes sense to buy term life insurance
If you have few health conditions, don’t have a risky occupation, and have other financial responsibilities you want covered — like children’s expenses or credit card debt, term life insurance is likely going to be the better option.
“There are also options for term life to turn it into whole life, which can be attractive to people,” said Ruiz. “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. Term life insurance makes sense for most people, but some people want both.”
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,” said Ruiz. “[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 insurance professional can help.
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 premiums and the death benefit decreases alongside 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 protection insurance is usually more expensive than a comparable term life insurance policy. 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 $30 per month for a $500,000, 30-year term life insurance policy if they have few health conditions. However, health, age, and hazardous occupations may make MPI cheaper than term life, so it depends on your situation.
