For most people, our house is the most significant investment we’ll make in our lives. Not only that, but a home is meant to be a refuge. Losing the household’s primary income can devastate a family’s finances — as well as their ability to keep their home. Mortgage protection insurance services can provide one layer of relief.

What is Mortgage Protection Insurance?

Mortgage protection insurance (MPI) keeps making monthly payments on the mortgage if the policyholder dies. Some companies advertise this service as mortgage life insurance. Some policies also extend protection for those who lose their job or get into an incapacitating accident. Despite the difference in name, most MPI policies function the same way as a traditional life insurance claim would. Each month, you pay a premium to maintain the policy and keep coverage current. If you die before the end of the policy, the provider pays the mortgage for your family for a set number of months. The terms of your policy will list this information in detail when you purchase it.

MPI rates and benefits

Like with other policies, you can shop around for better MPI rates and benefits. MPI differs from standard life insurance in several ways. For starters, an MPI beneficiary is usually your mortgage company, not your family. If you die, your family doesn’t get the money directly as they would with a traditional insurance policy. The money goes to your lender to pay for the mortgage instead, and you can’t spend it on anything else.

Life insurance policies, on the other hand, can fund things like property taxes and funeral expenses. Secondly, you’re guaranteed an MPI policy as long as you apply for it. With an insurance policy, the premium you pay monthly depends on things like what you do for a living and any existing health conditions you have. With an MPI, you can completely bypass the underwriting process, which is highly beneficial for those who work a dangerous occupation or are very sick. Unfortunately, guaranteed acceptance means the average mortgage protection insurancepolicy cost is higher than a life insurance plan with the same balance. If you’re healthy and work a simple job, you could pay more and receive less this way. Finally, regulations governing MPI and traditional life insurance are different. 

In most cases, there’s a clause in an MPI policy that says the amount of your death benefit comes after the mortgagebalance. The longer you pay for the mortgage, the lower the outstanding balance is. The longer you hold onto an MPI balance, the less valuable it becomes. There are also sometimes strict limits placed when you can purchase a policy. The majority of companies won’t sell you an insurance policy after the first two years of closing your home. Others are willing to supply a policy within five years of closing on the loan.

Who Should Consider Mortgage Protection Insurance?

In most cases, MPI is a guaranteed acceptance, which means they won’t reject you for your health or even make you take a physical. Therefore, if you’re struggling to qualify for life insurance due to major health problems, then mortgageprotection insurance is absolutely worth weighing. Consider the monthly cost of such a policy compared to how much it would cost your family to lose your home in the event of your death. The risk is too great to gamble.

Mortgage Protection Insurance Average Cost

When you apply for an MPI policy, the company will consider:

  • Balance left on the mortgage
  • Length of remaining loan
  • Smoking status
  • Your age

If you want a policy that also covers your spouse, the cost can also go up. However, it’s usually less expensive than getting two separate term life insurance policies. A joint policy will pay out a death benefit when one of the two dies. Here’s an example. Say you have another $120,000 left to pay on your mortgage. To cover yourself, you might find a policy with minimal coverage that costs just $50 a month. By adding living benefits and other options, your monthly premium might increase to over $150 per month with that same mortgage. It all depends on the possibilities.

What Does it Cover?

Mortgage Protection Insurance

The purpose of mortgage protection insurance is to pay all or part of your mortgage if you die. Depending on your policy‘s terms, the insurance might pay the mortgage for a predetermined period of time, such as for five years, or it might pay off the entire balance. The longer you still have on your mortgage loan, and the more you have to pay the bank each month, the more you will probably pay to get a policy. More and more companies design their policies to pay out the full remainder of your mortgage, regardless of the amount. This enables your family to use the rest of the money, however, they want. If you can pay your mortgage in full early, then you still keep your insurance coverage until it expires.

Depending on the policy they issue, the company may allow you to convert your policy into life insurance. Different policies offer different benefits depending on which riders you add to them. Some benefits extend the coverage to pay your mortgage if you’re newly disabled or otherwise lose your job. Keep in mind that this does increase your premiums. Still, most companies can work with you to design the perfect policy.

Pros and Cons of Mortgage Protection Insurance

Like with any purchase, mortgage protection insurance comes with its own benefits and drawbacks.

Pros

  • Guaranteed approval. Even if you work in a dangerous industry or suffer from a severe illness, you’ll get your policy without taking a medical exam or going to a lab.
  • Disability protection. Some MPI policies will pay your mortgage for a portion of the remaining length if you lose your job or become disabled.
  • No guesswork involved. When the money pays out, it goes directly to the lender for the mortgage balance. There will always be enough money, and your family doesn’t have to deal with the process themselves.

Cons

  • Rigid rules. Beneficiaries have no choice with MPI. Insurance pays off the mortgage and nothing else, so your family can’t choose to redirect the funds elsewhere.
  • More expensive. As the balance of your mortgage declines, so too does your policy‘s payout. That means, over time, you pay the same monthly premium for less a coverage amount.
  • Restrictive age limits. Compared to life insurance, MPI policies are more restrictive about age. Some companies will not provide a 30-year policy to an applicant over the age of 45.

Where to Get Mortgage Protection Insurance

If you think an MPI policy might be the right choice for you, there are a few ways to buy one:

  • Through your lender. After closing on a home loan, your mortgage lender may make you an offer to buy a policy. If not, you can ask your real estate agent for a company referral.
  • Through a life insurance provider. Several companies that offer life insurance will also sell you an MPI policy. If you already have insurance from a nationwide provider, you might have the chance to save money by bundling services.
  • Through private insurance. Plenty of private companies offer insurance policies, and that includes mortgageprotection policy.

Whatever route you choose, buying an MPI should be a priority shortly after closing on your mortgage loan. Most providers only offer policies within a specific window starting from that point. If you miss the window, you likely won’t be able to get a policy.

Mortgage Protection Insurance Exclusions

For the most part, there are few restrictions that could void an MPI policy. However, with like other forms of insurance, the company can void the policy if the owner takes his own life within the first two years of the term. Be sure to discuss the details with the company about any additional restrictions they may have.

Alternatives to Mortgage Protection Insurance

A mortgage protection life insurance policy is just one way to protect your family and your home. Fortunately, it’s not the only option. If you don’t qualify for any MPI policy, look into options like permanent life insurance, term life insurance, and whole life insurance. MPI policies are closest to term life insurance policy: If the death benefit exceeds the amount remaining on the mortgage, your family could use the money on other final expenses.

Simply put, MPI protects your family and keeps them from losing the place they’ve come to call home. Like with life insurance, you buy a policy that meets you and your family income and needs and pays a small price each month for peace of mind.

FAQ

What types of insurance do you need?

There are insurances you need, and many are not mandatory, but they are essential. First of all, there are different types of insurances that an insurance company can offer you and even more if they are for companies or not, but they are mandatory no matter what. Starting with the accident insurance or agreement insurance, this protects the employee with the capital in case of accidental death or disability. It is compulsory for a company or a financial institution, and its employees have to subscribe according to their sectorial agreement.

Next comes the professional liability or health insurance, for some professions such as doctors, lawyers, or architects are compulsory. It can cover possible claims for errors or negligence in their professional performance. Another is the commercial vehicle insurance. These are civil mandatory liability insurance. In fact, with this type of vehicle, many more eventualities can arise because they are used more frequently and are seen as vehicles exposed to many more risks. An insurance specialist continually reminds us that insurance is very important; without it, we would face financial hardship. Finally, there are many similar and essential insurances to have. Some are: life insurance options, Term Life Insurance polcy, Long-Term Care Insurance, Long-Term Disability Insurance, and Identity Theft Protection. 

Who should consider mortgage protection insurance?

Taking out mortgage protection insurance is a situation many people are going through to see fulfilled their aspiration for owning their own home choose the right coverage. There are days and weeks of the hustle and bustle, questions, lots of details to manage, and plenty of crucial decisions. Insurance is present amongst the information and choices to be made as an institution dedicated to assuming risks and taking an affordable way to avoid them.

Mortgage protection insurance policy is a contract that gets to pay off clients’ mortgage if, mostly during the mortgage term, clients or another policyholder passes away. Once you have a parallel mortgage, all parties require mortgage protection insurance cover. If a person can not work because of retirement, illness, or injury, their repayments are not covered by this type of insurance. With this type of cover, a person needs to consider certain types of mortgage cover.

Is it better to have mortgage insurance or life insurance?

Life insurance and mortgage insurance have similarities and differences between both. It all depends on what suits the person. Life insurance is a contract signed with an insurance company, whereby the latter undertakes to pay the beneficiary of the insurance a sum in the event of certain circumstances, such as accidental death or disability. The life insurance policyholder must pay the premiums in return, usually annually.

Mortgage life insurance can ensure our loved ones or ourselves if something happens to us, but first, it will pay the mortgage to the bank. Now, mortgage life insurancepays off outstanding mortgage payments if the insured is unable to make a death or disability payment. Banks usually require that those who take out a mortgage take out life insurance product in favor of the financial entity, so that, if they die, the bank can recover the money borrowed. The mortgage life insurance is not compulsory, but it is essential and necessary because in case the economic provider of the family fails, the heirs know that the insurance will pay off the debt. They will be able to continue living in the family home. 

When you retire do you keep your life insurance?

All of this would depend on the age at which you retire and, secondly, the type of insurance you take out because some offer covers up to the age of 7-75 or even more. It would already be the retiree’s decision depending on the situation in which he or she lives. If you retire, there is no need to maintain life insurance when there are no bills or debts to pay during retirement. However, if there are debts to pay or you want to help pay the taxes on the estate already in retirement, the recommendation is to still have life insurance. Thus, it is essential to take into account the conditions under which life insurance is taken out. 

Does homeowner insurance cover your mortgage if you become sick?

Homeowners’ insurance does not cover the mortgage. Therefore, It’s a big headache for homeowners is getting sick. Consequently, users won’t be able to work anymore, causing severe users to miss household payments and lose their homes that end up being a real nightmare. But, homeowner insurance covers people from fire, weather damage, and burglary, it won’t cover them if they can’t pay its mortgage every month.

Fortunately, various insurance types can help cover the mortgage in case of illness or job loss. The perfect choice will be a specialized life insurance policy as Mortgageprotection insurance; this one includes debt for people who get sick or passes away. If the consumer died, mortgage protection policy will pay their mortgage, so that they would own the house. In most cases, if people get sick or lose their employment, mortgage insurance will be covering the mortgage for a year or two.