What is Mortgage Protection Insurance (MPI)
Mortgage protection insurance is a type of insurance policy that helps your family make your monthly mortgage payments if the mortgage borrower dies before the mortgage is fully paid off. Some MPI policies will also offer coverage for a limited time should you lose your job or become disabled after an accident.
MPI is considered to be a type of life insurance, although it does differ from standard term policies. Traditional term life insurance insures the policyholder and pays out a benefit to their beneficiaries. Mortgage protection insurance is a type of decreasing term life insurance that pays out the benefit to a mortgage lender and is used solely to pay off a mortgage balance.
Why it matters
For many people, a mortgage payment is their biggest liability and expense. Losing an income provider can cause major issues on a family's finances and their ability to stay in their home after a loved one has moved on. With mortgage protection insurance, you can have peace of mind that your family will be able to stay in the home that they know and love.
Do you need Mortgage Protection Insurance?
If you own your home free and clear, you likely do not need mortgage insurance protection. Similarly, if you have sufficient life insurance, you likely do not need MPI. Discussing your life insurance policy with your insurance agent can help you make that determination. Term life insurance or permanent life insurance will likely be a more flexible and more affordable option for those who qualify.
If you have trouble getting traditional life insurance, MPI can provide important protection that might not otherwise be accessible to you. Here’s why.
MPI has a guaranteed approval. If you are in poor health or have other complicated liabilities, the option to obtain insurance without medical exams or lab tests can be very helpful.
The check goes straight to the lender for the exact mortgage balance.
Some MPI policies make mortgage payments, usually for a limited time, if you become disabled or lose your job.
It is important to remember that MPI has a few downsides, including the following:
Lack of flexibility: MPI gives beneficiaries no choice. The insurance pays off the mortgage, nothing else.
Higher cost: MPI typically costs more than term life insurance, especially for healthy and responsible adults.
Shrinking coverage: as your mortgage balance declines, the policy’s payouts declined with it. That means you’ll end up paying the same cost for less coverage over time.
Other things to know
You can purchase mortgage protection insurance through your current lender, through a private insurance company, or through a life insurance provider.
You should make it a priority to find either an MPI or Life Insurance policy after you close on your loan. Most insurance providers have a limited window in which you can buy an MPI policy (usually 24 months). If you think you may have missed that window, you’ll want to instead consider a good term life insurance policy or permanent life insurance policy.
Like most other types of insurance, you’re free to cancel at any time, but you must remember that you won’t get any of the money back that you paid to your insurance provider when you cancel.
The cost of your mortgage protection insurance policy depends on a few different factors such as the remaining balance of your mortgage loan and how much time is left in your loan term. They will also take into consideration your age, job, and overall risk, similar to a life insurance policy, although much less strict.
In general, we usually recommend sticking with life insurance due to its flexibility, allowing your family to make decisions that make sense for them after you are gone.