Mortgage Protection Insurance vs. Term Life: Which Is Best?

What would happen to your family if you passed away before your house’s mortgage was paid off? Will your loved ones have enough cash to make loan payments on time? There are numerous issues that can make it difficult for a household to make mortgage payments. If this occurs, foreclosure is a distinct possibility. 

Let’s Define the Key Terms

Mortgage Protection Insurance (MPI)

If you recently closed on a home mortgage or home equity line, you have undoubtedly already been inundated with solicitations for mortgage protection insurance. These are typically presented as official communications from your mortgage lender and offer very little information on the product. 

The purpose of mortgage protection insurance (MPI), a sort of life insurance, is to pay off your mortgage in the event of your death. Some plans additionally cover mortgage payments in the event of disability (often for a short time). Most of the time, the policy has a declining term, meaning that as the years pass and you pay off your house loan, the amount decreases while the premium you pay remains the same.

Don’t confuse MPI with private mortgage insurance (PMI), which protects the lender only if you default on the loan. With PMI, your family would still owe the balance of the loan if you passed away.

Term Life Insurance

Term life insurance is a straightforward product to understand. It is an insurance policy that provides a tax-free death benefit (or payout) if you pass away within the time period covered, typically for a term of 15, 20, or 30 years.

The beneficiaries may use the death benefits any way they choose, such as paying off your mortgage, covering your children’s tuition, or paying for your funeral. Usually, throughout the term, both the premium (the amount you pay for the coverage) and the payment stay the same.

Should You Buy Mortgage Protection Insurance?

Ask yourself these questions and sit down with your agent to review the many different options you have. 

Can you get similar or better coverage?

You might not want mortgage protection insurance, for instance, if you already have term life insurance with a death benefit that is sufficient to pay off your mortgage. If you are concerned that an illness or injury could force you into foreclosure, disability insurance is another product to consider.

Do you want options including payment of mortgage?

MPI will only provide payment on your mortgage. You may have other financial needs to consider, and term insurance might be a better fit for you. 

Do you want the lender to receive the benefit?

This is typical of mortgage life insurance. The benefit of term life insurance goes to the designated recipient, who can utilize it in any way they see fit.

Are you able to secure life insurance?

Your medical history or present health concerns may make it more straightforward for you to purchase mortgage protection insurance if you are unable to obtain permission for life insurance.

Key Considerations Before You Decide

• Beneficiaries of MPI are given no options. Nothing else is paid by the insurance other than the mortgage. This implies that your family cannot utilize the funds for any other purpose.
• Term life plans frequently have more flexible issue ages than MPI policies. For instance, some insurers won’t offer someone over the age of 45 a 30-year MPI coverage.
• MPI provides assured approval. There is guaranteed approval with no medical exams or lab testing, even if you have a severe health condition or work in a hazardous field.
• Term insurance never decreases.
• The traditional term offers a price guarantee that will not change for the duration of the coverage period. The cost of many MPI policies is subject to future revision.

In Summary

Investigate thoroughly before deciding on mortgage protection insurance from a firm that is unknown to you or that might be engaging in deceptive business activities. It might not be worth the money to get MPI if you own your property outright.

Most people don’t require MPI if they have enough life insurance (even if those solicitations say otherwise). Consider purchasing more life insurance if you don’t already have enough. For those who qualify, term life will probably be more adaptable and less expensive. 

Term life insurance might be a better investment if you want to ensure that your family is protected outside of your house. The payment may be applied to other costs not related to your mortgage. Check with your agent; they will be a good resource for you. 

Free ebook: Get your copy today!

Leap | Carpenter | Kemps Insurance Agency Can Help

Protecting your family’s future is a big responsibility, but we can make it easier. When you work with Leap | Carpenter | Kemps Insurance Agency, you can rest assured that just like you’ve got your family’s back, we’ve got yours. We offer the most extensive range of life and health insurance options in the region. Contact us today.