One of the most important things an individual has a reasonable chance to encounter at a certain period in their life in the US is getting a mortgage. When you and a lender enter into a mortgage, the lender is granted the power to seize your property if you are unable to pay back the loan amount plus interest. Mortgage loans are used to either purchase a home or borrow against an existing home’s worth.
Falling behind in your mortgage payments can result in increased interest costs, late fines, foreclosure actions, and ultimately the loss of your home. One approach to protecting your family and investment in case of your untimely demise is with mortgage protection insurance (MPI).
Mortgage protection insurance, also referred to as Mortgage Payment Insurance or simply MPI, is a type of life insurance policy that reimburses your mortgage lender for any unpaid balance. Mortgage protection and life insurance are the same thing, they’re just sold differently according to Doug Mitchell, owner of the life insurance firm Ogletree Financial.
But there is one significant distinction. Your mortgage and mortgage insurance are related. Consider a homeowner who still has 15 years to go on a $250,000 loan. A MPI policy that will help pay down some or all of the mortgage should the person pass away can be obtained for the duration of the mortgage.
“What the mortgage protection insurance does is offer you an option to have payments available so that you don’t default or foreclose on the mortgage,” said Jordan Shanbrom, a life insurance broker from California Life Coverage.
Mortgage Insurance in case of Demise
If you pass away, your mortgage insurance will pay off the remaining sum. This guards against your family falling behind on mortgage payments, which may force you to sell your home or file for foreclosure.
Mortgage insurance can pay out the full loan all at once or over a period of time, like five years, depending on the terms of the policy. You will pay more in premiums the longer and larger the payoff is.
Mortgage protection insurance’s death benefit is paid to the mortgage lender, not to your heirs. Your loved ones will not be permitted to use the proceeds from an MPI coverage, in contrast to conventional life insurance policies.
In order to help with living advantages, you can also add riders. If you become disabled and are unable to work or lose your job, these benefits may include paying your mortgage. For instance, if you want to assist pay your bills if you become disabled and are unable to work, you might add a long-term disability rider that pays up to 60% of your salary. Your premiums often go up when you add riders. However, riders can assist you in creating a policy that is suitable for you.
How It Works
MPI functions similarly to conventional life insurance policies. Each month, you pay a premium to your insurance company, and when you pass away, the insurer makes a payout. Mortgage provider Quicken Loans states that based on the conditions of the policy, the company will either pay the agreed-upon amount of mortgage payments or the entire debt.
Discover who needs mortgage protection insurance, what it protects, and how much MPI costs by reading on.
Who is Mortgage Protection Insurance For?
Mortgage insurance may be advantageous for anyone having a mortgage balance.
According to Doug Mitchell’s advice you should buy life insurance to pay the mortgage in the event that one of the homeowners passes away before their time. You undoubtedly would have other financial bases to cover, so you shouldn’t only buy life insurance in an amount equal to the mortgage balance.
According to Shanbrom, MPI can also assist those who depend on the primary note holder. “It may damage the stability of the household and make it difficult for those within to go back to work if that person passes away and is unable to make payments.”
Mortgage insurance is a smart idea for all couples, but it’s especially wise for young families with kids, according to Necole Gibbs, a registered independent broker with TNG Insurance and Financial Services.
A return of premium policy is an option if you’re worried about losing money on premiums. If you outlive your mortgage insurance, such plans, which can be expensive, reimburse you for your premium payments. According to Gibbs, these plans are paid out in a lump sum at the conclusion of the policy’s term.
If you don’t want to undergo a medical examination to purchase a standard term life insurance policy, MPI is another choice. For an MPI coverage, some insurers don’t demand an exam.
“It opens the window to get life insurance without having to jump through all the hoops,” according to Andy Albright, the CEO of National Agents Alliance.
How Much Does Mortgage Protection Insurance Cost?
Rates for mortgage protection insurance vary based on the size of your mortgage and the remaining loan term. Insurance companies calculate MPI premium costs by taking into account your age, smoking status, remaining home loan term, and if the policy covers two spouses.
Let’s examine potential monthly expenses. You might be able to locate a mortgage insurance policy with a minimum of $50 per month of coverage if you have $120,000 left on your loan. On that same $120,000 amount, adding riders like return of premium and living benefits can raise the average monthly cost of mortgage protection insurance payments to $150 or more.
What Does Mortgage Payment Insurance Cover?
If you pass away before paying off your mortgage in full, mortgage life insurance will pay the remaining debt. Nothing else is covered by it, unlike a regular life insurance policy, which would pay for final medical expenses or burial expenses.
The fact that the policy pays out to your lender rather than your beneficiaries means that it cannot be utilized for any other purpose. MPI pays out to your lender and exclusively covers the cost of your mortgage, unlike typical plans that pay out to your family and can be used anyway they see fit.
How Does Mortgage Protection Insurance Compare to Private Mortgage Insurance?
Private mortgage insurance (PMI), which sounds similar to mortgage insurance, is something quite distinct.
In the event that a homeowner stops making mortgage payments, PMI guards the bank or lender. Your lender probably compelled you to buy PMI if you bought a property with less than 20% down.
Mortgage protection insurance will pay off your loan after you pass away, but PMI is meant to cover a portion of your loan if you fall behind on your payments. Instead of your family, the reward is given to your lender.
Who Cannot Get Mortgage Payment Insurance?
Shanbrom says companies may include mortgage insurance exclusions. You may not be able to get a policy if you are:
- A senior citizen
- A non-U.S. citizen
- Permanently disabled