Should You Get Mortgage Protection Insurance?

Mortgage protection insurance can be an attractive option for homeowners looking to protect their investment and keep family members from financial troubles. This type of insurance policy covers your remaining home loan balance if you die.

If you die before your mortgage is fully paid off, your heir or heirs will need to assume the payments if they want to keep the home. In the event they are unable to meet the payments, the loan will go into default. If it continues to go unpaid, the bank will foreclose and take possession of the property.

Mortgage protection insurance, or MPI, can prevent such an event. If you have this policy, the insurance company will typically pay the lender the remaining mortgage balance after your death. Some MPI policies will also pay out to the lender for a specific period of time if you become unemployed or disabled, so there is no interruption of payments.

“For a homeowner who is concerned about something happening to them and they have dependents, MPI can be beneficial,” says Dianne Crosby, senior vice president of mortgage lending at Guaranteed Rate. “I got MPI for myself after I got divorced because I have three children. I didn’t want to leave them with that burden. It gave me and them an extra layer of protection.”

As the MPI policy holder, you would pay your premiums over a specific term. During that time, you are covered. The benefit from this kind of insurance is generally decreasing, meaning the possible payout goes down over time. As you pay off more of your mortgage, there is less loan for your insurance to cover.

MPI is not the only strategy to help your heirs keep the home. Another option is a level term life insurance policy. It’s more flexible than MPI because the money goes directly to your beneficiaries. In contrast, since the MPI death benefit is restricted to your mortgage, it won’t cover your lost wages, funeral costs or other end-of-life expenses.

“A term life insurance policy that incorporates other debts and liabilities might have (a) higher death benefit than one strictly for the mortgage,” says Logan Wease, president of We Insure Things, which sells MPI. “In some cases, it is also less expensive.” However, life insurance policies can be prohibitively expensive if you’re older, have a preexisting illness or lead a dangerous lifestyle, Wease says, while the primary factors in MPI premiums are the amount of the coverage and your age.

“You get more benefits with term insurance, but if you’re just looking to cover the mortgage, MPI is the way to go,” Chitrathorn says. “It can also prevent squabbles. With term life insurance, the money passes to a beneficiary – a brother, sister, a daughter – and it’s up to that person to decide to pay off the house. With MPI, the mortgage gets paid free and clear.”

Another alternative to MPI is building savings and investments. Instead of making premium payments over years that may never pay out, you can save your money and invest it so it grows. If you have amassed enough, it can be sufficient to pass on to your loved ones when you die, so they can either make the payments or pay off the loan.

There are a few other common insurance policies associated with homeownership that are distinct from MPI. Here is what they are:

You can purchase an MPI policy from a few different sources. Your lender may offer it, so it’s worth checking there. Life insurance companies and private insurance companies also offer MPI, according to the credit bureau Experian.

When shopping for an MPI policy, try to get quotes from several companies so you can compare premiums and coverage.