Mortgage protection insurance (MPI) is a type of term life insurance that only covers your monthly mortgage payments if you die. It’s limited compared to traditional life insurance, which provides a tax-free lump sum of cash that can be used to pay for any expenses after your death.
What is mortgage protection insurance?
Mortgage protection insurance is a personal life insurance policy that covers your monthly mortgage payments — and only your mortgage payments — if you die. It’s meant to protect your family from having to sell or lose their home due to the loss of your income.
Mortgage protection insurance is different from private mortgage insurance (PMI), which protects the lender and is required by most lenders if you put less than 20% down on a home.
Mortgage protection insurance vs. term life insurance
Mortgage protection insurance is a type of decreasing term life insurance tied to the balance on your mortgage. The death benefit decreases over time to coincide with your outstanding mortgage, but premiums remain level.
Traditional term life insurance has a level death benefit and level premiums. You buy a policy for a set period of time, pay the premiums, and, in the event of your death, have a death benefit paid out to your beneficiary.
The largest difference between the two is who the funds get paid to upon your death. With mortgage protection insurance, the money is paid directly to your lender. Under a traditional term life policy, you get to name any beneficiary (such as family or loved ones).
See how term life insurance compares to MPI and PMI.
Term life insurance | Mortgage protection insurance | Private mortgage insurance | |
---|---|---|---|
Policyowner | Borrower | Borrower | Borrower |
Beneficiary | Anyone | Mortgage lender | Mortgage lender |
Death benefit | Level | Decreasing | N/A |
Premiums | Level | Level | May vary |
Cost | $19/month | $99.23/month | 0.5% to 1% of the loan/month |
Coverage limit | Up to 30 times your income | $25,000 | Based on loan amount |
Mortgage protection insurance qualifies as guaranteed issue life insurance because it doesn’t require a medical exam, which makes it significantly more expensive for less coverage compared to term life insurance. Coverage available is limited to $25,000, which may not completely cover your outstanding mortgage payments.
Should you buy mortgage protection insurance or life insurance?
Unless you have a complicated medical background that would disqualify you from coverage, traditional term life insurance is a better option than mortgage protection insurance. Here’s why:
Term life covers everything. Your beneficiaries can use the death benefit for any expenses — not just mortgage payments.
Term life has higher benefit amounts. Mortgage protection insurance restricts you to low coverage limits (up to $25,000 with most insurers) that may not fully cover your mortgage balance.
Term life offers more coverage lengths. MPI usually comes in 15- or 30-year terms (just like a mortgage), while term life policies have shorter or longer terms depending on your needs.
Term life is less expensive. MPI policies almost always cost more than traditional term life.
If skipping the medical exam is important to you, there are affordable no-medical-exam term life insurance options available, too. Still not sure which type of insurance is right for you? Reach out to a Policygenius agent for free to talk through the different options available.