Is Mortgage Protection Insurance Worth It?

Mortgage protection insurance, sometimes called mortgage life insurance, ensures that your outstanding home loan balance is repaid if you die unexpectedly or become permanently disabled. This can provide your family with much-needed financial relief during a difficult time, helping them stay home. 

While this coverage might sound like a great option, there are some important caveats to know if you’re considering mortgage protection insurance. Here’s how it works, what you can expect to pay for it when opting for this coverage might make sense and more. 

How do mortgage protection insurance companies work?

Mortgage protection insurance (MPI), not to be confused with private mortgage insurance (PMI), is optional life insurance coverage that provides peace of mind that your mortgage won’t burden your family if you die or become permanently disabled before it’s paid off. 

Major insurance companies or your mortgage lender might offer MPI, though standard term life insurance is much more common. MPI works differently than standard term life insurance:

• With term life, you receive a level benefit, meaning your life insurance payout won’t decline over time. 
• With MPI, your coverage amount typically matches your outstanding mortgage balance and usually declines as you make your monthly mortgage payments. 

In addition to your monthly mortgage payments, you’ll also pay monthly premiums for your MPI. This coverage is typically in place for a set term, often 20 or 30 years, and you’ll make monthly payments during that time period. Your insurer may cancel your coverage if you fail to make monthly payments.  

If you die due to a covered cause, typical life insurance policies pay a lump sum to your designated beneficiary, often a spouse or family member. But your MPI pays your mortgage lender instead. So your family no longer needs to make a monthly mortgage payment but doesn’t receive a life insurance payout. 

What are current mortgage protection insurance rates?

As with other types of insurance, there’s no one set rate for MPI coverage. Legal website Nolo estimates that monthly rates for mortgage protection insurance range from $20 to $100—a fairly wide range. 

The amount you’ll pay for this coverage will vary depending on your mortgage balance, the remaining time on your mortgage term, and other factors. Some insurers might also consider your age and health when determining your rate.

In general, you can expect to pay higher rates for all types of life insurance if you’re older or in poor health.  

How can I determine my mortgage protection insurance cost?

If you’re interested in mortgage protection insurance, get quotes from different companies offering the product. MPI isn’t as widely available as traditional term life insurance coverage. Thus, it might be difficult—though likely not impossible—to find a company that offers true MPI. 

Companies offering this coverage may provide the option to get a quote online or over the phone. While researching companies and requesting quotes can take some time, it’s likely worth it because premiums could vary widely depending on your insurer. 

Some disreputable companies might try to sell you expensive mortgage protection insurance by mail after you buy a home. The mailers often have time-sensitive language making it seem you need to purchase a policy urgently. We recommend avoiding this type of company and instead finding a reputable insurer.

When is mortgage protection insurance worth it? 

While it’s less common than some other insurance products, there are a few instances in which mortgage protection insurance could be worth it. An MPI policy might make sense if you’ve been denied another type of life insurance or if it’s too cost-prohibitive due to your age, health, or occupation. 

Mortgage protection insurance is typically guaranteed, meaning it doesn’t require that you have a medical examination or meet other requirements as a condition of getting covered. Thus, it could be a wise alternative to permanent or term life, which often requires you to meet certain criteria for coverage. 

Still, it could make sense to consider alternatives first, especially if you’re seeking flexibility or a level death benefit. Some decent alternatives include:

• Term life insurance
• Whole life insurance

Term life insurance

Traditional term life coverage is a popular alternative to MPI coverage. With a term policy, you can designate a beneficiary instead of your mortgage lender. Plus, you’ll get a level benefit, meaning your life insurance payout won’t decline as you pay down your home loan as it would with mortgage protection insurance.

Term life coverage is temporary, often protecting you for up to 30 years as long as you keep up with monthly premiums. If you die for a covered reason during your term, your beneficiary receives a payout. 

The life insurance payout amount will vary depending on the coverage you selected when you chose a policy. You could find a term policy with a $1 or $2 million benefit. 

While term life has its benefits, many companies require that you have a medical exam as a condition of obtaining a policy. Getting coverage might be difficult or cost-prohibitive if you have certain health conditions or a risky occupation. 

Read More

Best term life insurance companies

Whole life insurance

If you’re worried a term life policy won’t be sufficient, you could opt for whole life coverage instead. This coverage is a form of permanent life insurance that offers protection for your entire life instead of a set term.

While protection for your entire life might offer more peace of mind than a set term, whole life insurance also costs much more than a term life. The money you’d pay each month for whole life insurance could be added to your family’s savings or investment account. For this reason, term life insurance is often sufficient for most people. 

As with term life, your insurer will typically require a medical exam to obtain whole life insurance. Pre-existing health conditions and risky occupations could also be barriers to getting a policy. 

Read More

Best whole life insurance

Ask the expert

Crystal Rau

CFP®

I typically recommend term insurance unless other factors are at play, such as children with special needs in the picture or other extenuating circumstances. A term policy will cover the length of the mortgage, and you will often get a better rate than with an MPI plan since you are going through medical underwriting. Term insurance makes sense because as you’re leveraging debt to purchase a large asset such as a home, ideally you’ll be saving into retirement accounts and building equity. The idea is that over time as your liabilities decrease, your assets increase, making the need for insurance less important than it once was with a young family and a lot of debt overhead.

Can you remove mortgage protection insurance? 

Your mortgage protection insurance will typically be in place for a set term, often as long as your mortgage itself. Depending on the terms of your policy, your insurer may be willing to cancel your coverage. If you’re interested in canceling, it’s best to review your policy documents and speak with your insurer to determine if that’s an option. 

Certain insurers might cancel your coverage if you fail to pay your monthly premiums. So if you intend to keep your MPI, ensure your monthly premiums are paid. 

It’s important to avoid confusing mortgage protection insurance with private mortgage insurance, which protects your lender if you default on your home loan. 

You can generally request that PMI be removed from your mortgage once you have at least 20% equity in your home. Alternatively, PMI will drop off automatically once you have 22% equity.