What Is Mortgage Protection Insurance?
Mortgage protection insurance covers the principal and interest portions of a mortgage payment in the event the policy holder can no longer make mortgage payments. Instead of providing funds that can be used for any expenses, mortgage protection insurance is paid directly to the mortgage lender.
Mortgage protection insurance is similar to life insurance, in that it is paid out after one’s passing. However, the way the insurance proceeds are used differ.
With this type of insurance, the proceeds are sent directly to the mortgage lender, not to the insured homeowner.
The insurance policy doesn’t only cover the death of the homeowner. If a homeowner becomes disabled and cannot work, the insurance may cover the mortgage and interest payments.
Depending on the policy, it may also help cover mortgage payments for job loss or other life events. These differences are referred to as riders.
How Does MPI Work?
Once a mortgage protection policy is obtained, the homeowner makes monthly payments to cover the insurance premium.
Instead of the homeowner choosing the beneficiary, the mortgage lender is the default beneficiary. Over time, the amount that may be paid out decreases, since the mortgage decreases as principal payments are made.
If the homeowner dies, the remainder of the mortgage will be paid directly to the lender. If the homeowner suffers a covered injury or another event, the insurance will cover the mortgage payments for a specified amount of time.
1. Get A Quote
The first step is to get a quote for mortgage life insurance. Anyone is able to apply for MPI. The monthly premium, however, will depend on the applicant’s age, income, mortgage, and other mitigating factors.
2. Choose A Policy
Policies will differ for many reasons, including price, coverage, riders, and eligibility. Once you find the policy that best suits you, it is best to lock down the policy before any health or income factors change and effect your monthly premium.
3. Get Peace Of Mind
Whether the mortgage protection insurance is to cover yourself or a loved one, rest assured knowing that their ability to pay for their mortgage is protected. Due to the uncertainty of a life event, the ability to afford home payments is crucial.
How Long Is The Term For MPI?
The term length of a mortgage protection insurance policy generally matches the length of the mortgage being insured. If the policy holder has a 30 year mortgage, than the MPI policy will also be for 30 years.
It can also be limited by the homeowner’s age, as older buyers are more likely to experience a covered event compared to younger buyers.
Since an MPI policy is not required, it can be canceled at any time. Homeowners may prefer to cancel it to save money once they have a significant amount of equity in their home.
How Much Coverage Do MPI Policies Offer?
Mortgage protection insurance policies can range anywhere from $5,000 to $2,000,000+ depending on the size of the mortgage being covered.
If only a small mortgage is being covered, or the mortgage in nearly paid off, then an applicant will only require a small MPI policy. But if the applicant needs to insure a brand new mortgage or cover an expensive home, then the size of the policy will be much larger.
Regardless of the amount of coverage the policy has once it begins, all mortgage protection policies decrease over time. As the mortgage is paid down, the amount of mortgage insurance coverage decreases as well. This ensures no excess funds are paid out by the insurance company.
Is Mortgage Protection Insurance Required?
Mortgage protection insurance is not required to purchase or own a home. However, it may prove beneficial depending on the homeowner’s personal situation.
Private mortgage insurance, which is different, may be required by the lender. However, MPI is something that the buyer can choose to purchase if they want to protect their ability to afford mortgage payments.
Does MPI Offer Add-ons or Riders?
Insurance riders, otherwise known as a floater, is an optional add-on to an insurance policy. These are meant to provide various types of benefits to a policy holder, depending on the rider. Different types of insurance will have different types of riders due to the nature of the payout and policy.
When it comes to mortgage protection insurance policies, there are many different riders available. Given the similarity to life insurance, MPI will feature the option for riders that change when or how a policy payout is received or initiated.
With mortgage protection insurance, riders come into play when the applicant wishes to have additional coverage included in the policy. This coverage can include life events outside of death that might impact one’s ability to pay their mortgage.
Critical Illness: With this rider added on, a lump sum payment can be made according to the amount purchased if the homeowner is diagnosed with an illness covered by the rider.
The suggested amount is 12 to 24 months’ worth of mortgage payments, but homeowners can purchase up to 100% of the mortgage amount in case it is needed.
Bankruptcy: In order to protect your mortgage payments from potential bankruptcy, check out bankruptcy riders for your mortgage life insurance plan.
In the event you need what some call a fresh financial start, this rider protects your ability to pay for your mortgage.
Unemployment: Buyers may wish to add on the unemployment rider if it’s not already included in the policy. This covers the buyer if they lose their job involuntarily, as long as the reason for this is covered by the policy.
There may be a waiting period before coverage begins for this rider, but once it does start, it can cover up to six months of mortgage payments while the homeowner looks for a new job.
Return of Premium: Some MPI companies will offer a rider that enables the buyer to receive a refund for all premium payments. Applicable fees can be deducted from this when it is used.
This can only be used once the policy term has ended and may not be able to be obtained if the mortgage was used for unemployment, illness, or other temporary reasons before the policy’s end.
Accelerated Access: Although uncommon in mortgage protection plans, accelerated access is a type of rider that provides benefit before death. Examples include being diagnosed with a chronic illness or critical injury that makes paying a mortgage impossible.
Disability: If a policy holder becomes disabled and is unable to continue making mortgage payments, then a disability rider will be helpful. If your line of work is risky or your genetics have lead to disabilities, consider this rider.
Overloan Protection: Overloan protection ensures that excessive loans or mortgages cannot be made against the mortgaged property.
Primary Insured: This insurance rider provides added benefit to the primary policyholder, in addition to that of the mortgage protection. This will usually come in the form of a life insurance policy.
Additional Insured: Similar to the primary insured rider, this provides added benefit coverage to additional household members not included in the mortgage protection plan.
Children: Another add-on for mortgage protection insurance can include a benefit for children who live in the originally-protected household, in the form of a life insurance policy.
Accidental Death: While a natural or illness-caused death is already covered in a mortgage life insurance plan, accidental death may not. This accidental death rider protects the mortgage in the event the policy holder dies via an accident.
Waiver of Premium or Monthly Deductions: In the event the insured party becomes incapacitated and unable to pay their mortgage before the age of 65, it is possible to receive a waiver of premium payments or monthly deductions.
Do I Need a Mortgage Insurance Rider?
Depending on your health and financial situation, an add-on rider to your mortgage protection insurance plan may be beneficial.
There are many options available to supplement your MPI, and depending on your needs, a certain rider may protect you from risks that you weren’t aware of.
By getting a free mortgage protection insurance quote, you can find out which policy and riders are best for you.
Is Mortgage Life Insurance The Same As Life Insurance?
While mortgage protection insurance is technically a form of final expense life insurance, the major difference is with MPI the policy holder cannot choose the beneficiary. The beneficiary of an MPI policy will always be the mortgage lender.
Since the MPI reduces in value as the mortgage is paid off, there will not be any excess funds to be retained by the family.
Unlike many life insurance policies, MPI policies have guaranteed acceptance. This means applicants will not be turned down for a policy because there is no underwriting process with MPI.
The cost can vary based on the homeowner’s health or occupation, but just about anyone can obtain a policy. This means that MPI can be more expensive than life insurance for the same amount of funds.
There are also differences in the rules and regulations. With life insurance, the balance on the policy stays the same over time, while it lowers for an MPI policy as the mortgage is paid off.
On top of this, there may be limits on when the policy must be purchased, usually within two years of buying the home. Life insurance, on the other hand, can be purchased at any time.
Who Sells MPI?
MPI can be purchased from a mortgage lender, a private insurance company, or through a life insurance provider. Not all insurance companies offer this type of insurance, as it is frequently rolled into a full life insurance policy.
MPI providers that we review include:
- Athene Annuity
- Colonial Penn
- Foresters Financial
- Global Atlantic
- Globe Life
- John Hancock
- Mutual of Omaha
- Royal Neighbors of America
- State Farm
What’s The Difference Between Mortgage Protection Insurance And Private Mortgage Insurance?
PMI, or private mortgage insurance, is similar to MPI in that it insures the ability to pay the mortgage. Otherwise, they are vastly different.
The main difference is that PMI can be required by the lender. This type of policy is required on most loans if the home buyer uses a down payment of less than the standard 20%. MPI insurance can be canceled at any time, but PMI insurance can only be canceled once the equity in the home reaches 20% or higher.
MPI on the other hand is completely optional and is not determined on the amount of equity in a home. Rather, an MPI policy is based on the balance of the mortgage.
Is MPI A Good Idea?
If there is any concern that you or a loved one may become unable to afford their mortgage payments, then a MPI policy can be an affordable reassurance. Since MPI proceeds are paid directly to the lender, the policy can be effective for ensuring the funds are used properly and for good use.
It is important for homebuyers to compare income and assets to any debts they might have to determine if they’ll need this type of coverage. Using the MPI calculator can help you determine if a policy is right for you.
Where Can I Get Mortgage Life Insurance?
MPI can be purchased in any of the following states:
- New Hampshire
- New Jersey
- New Mexico
- New York
- North Carolina
- North Dakota
- Rhode Island
- South Carolina
- South Dakota
- West Virginia