Mortgage Protection Insurance, sometimes called MPI, is designed for one purpose, to pay off the debt on a mortgage. This is if the borrower loses their life either due to either an accident or natural causes.
Now, term life insurance can be used for any purpose, including but not limited to a mortgage payoff. Under most circumstances, a term life insurance policy is a better choice and offers a lot more options. In this article, we’ll talk a bit more about the key differences you should know before you buy this all important financial protection.
What’s the Point of Mortgage Protection Insurance Then?
A mortgage protection insurance policy is really just a decreasing term policy designed to only cover your mortgage in the event you pass away during the mortgage payoff period.
It is very important to note – Mortgage Protection Insurance is not related to private mortgage insurance (PMI). PMI is required by any lender or bank if your down payment did not satisfy their minimum requirements. Private mortgage insurance is typically required if you do not put down at least 20% upfront on mortgage. Private mortgage insurance is designed to help lenders recover some of their financial losses if a borrower is unable to make their payments and defaults on the loan. PMI does not pay off the mortgage. In other words, private mortgage insurance (PMI) helps the lender out, not you or your family.
PMI should not be confused with MPI, mortgage protection insurance which can guarantee your obligated payoff to the lender in the case of death.
Nuts and Bolts of Mortgage Protection Insurance (MPI)
MPI, is a built on a decreasing term life insurance product. There are 15 or 30 year terms to match the length of the mortgage term you elected from your lender. As the policy ages with the mortgage, the death benefit of the policy is declining in sync with the declining balance on your mortgage.
Standard Term Life Insurance has a level death benefit for the entire “term” of the policy. In other words, it does not change.
One of the other key differences between MPI and level term life insurance is who the death benefit is paid out to. With a mortgage protection insurance policy, the benefits are paid directly to your bank, credit union or other lender. This is to satisfy the remaining mortgage amount if death occurs. The lender is the MPI beneficiary. Now, with term life insurance, the level death benefit is paid directly to your beneficiary of choice. This will be someone or some entity the policy owner has chosen to have the death benefit paid to resolve debts in their absence. The beneficiary of the policy can use the policy proceeds to cover the mortgage and any other needs they may have. The policy owner and beneficiary are in control of how the proceeds will be used.
Term Life Insurance vs. Mortgage Protection Insurance
Looking at the benefits of each one of these types of policies…they both get the job done. They allow you to transfer risk to a life insurance company to provide the guaranteed funds to cover the cost of your mortgage for a monthly premium. With that said, level benefit term life insurance will accomplish this benefit with aplomb and with more flexibility. It also leaves the opportunity to add additional coverage in the policy to be covered for a critical illness, chronic illness, terminal illness or even disability if you have a major health event or accident and are not able to work. Qualifying for more benefits does require good overall health. If you qualify, it provides a lot more security for you and your family. Your only responsibility is to keep up with the monthly premium which transfer those risks to the insurance company.
In summary, I just don’t see enough reason to advise the typical client to chose MPI over level term life insurance. Term life insurance is so much more flexible and portable. It isn’t just tied to the your current mortgage.
Inevitably, when someone’s life is unexpectedly lost, there are many other final expenses to be covered as well. Everything from burial costs, remaining medical bills, auto loans and even income supplementation for our loved ones.
No one wants to leave their family in a financial mess do they?
This is enough for us to recommend level term life insurance over mortgage protection insurance.
Sometimes term life insurance can be more challenging to purchase if your health history is rocky. That is why you work with the right professional who can also find the right company and policy for you. Find a seasoned, independent life insurance agent who can shop your age, health and coverage needs out for mortgage and family protection. This is how you will get the best coverage and price for your needs and obtain the peace of mind your looking for.
As always, please feel free to leave a comment below.
If you have any questions or need help with mortgage protection, please give us a call. We’re here to help. 269-230-3464
Michael is a licensed and veteran independent life and health insurance agent who specializes in guiding people with even high risk conditions thru the insurance process. He is passionate about helping individuals and families get their unique financial protection needs met, providing his experienced based advise and delivering affordable and dependable coverage people and families can count on.