What is mortgage protection life insurance?
Mortgage protection life insurance (MPI) is a type of life insurance that helps pay off your home loan if you die. MPI isn't the same as private mortgage insurance (PMI), which helps protect the lender if you can't make payments on your mortgage. MPI is also different from term life insurance. MPI pays the lender and decreases as you pay off your mortgage, while term life insurance pays out a set death benefit to your beneficiaries. They can use the death benefit to pay off your mortgage, credit cards, funeral costs, or other expenses.
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Key takeaways
MPI helps pay your mortgage balance if you die, and PMI protects the lender if you miss mortgage payments
While term life pays a fixed death benefit that your beneficiaries can use to pay expenses, MPI pays the lender directly and decreases over time
How does mortgage protection life insurance work?
Mortgage protection life insurance works by paying your mortgage balance if you pass away before paying off your home loan. It can give you peace of mind while helping your loved ones avoid worrying about paying your mortgage if you die during the policy term. A beneficiary is the person who receives the policy's payout. With MPI, the lender is the beneficiary instead of a loved one.
MPI premiums are typically fixed, so you pay the same amount each month for the life of your mortgage. It's important to understand that MPI coverage is equal to your mortgage balance. This means it decreases over time as you make mortgage payments.
Can I use MPI coverage while I'm alive?
Yes, some mortgage life insurance policies include living benefits that let you access part of the death benefit while you're still alive. Depending on your insurer, you may need to add an optional rider to your MPI policy to access living benefits. Living benefit riders generally require that you meet certain terms, like having a serious illness, disability, or sometimes a job loss.
What's the difference between MPI vs. PMI vs. term life insurance?
Here's a breakdown of how MPI compares to private mortgage insurance and term life insurance, including coverage amount, premium cost, beneficiaries, and more.
| Category | Mortgage protection life insurance (MPI) | Private mortgage insurance (PMI) | Term life insurance |
|---|---|---|---|
| Definition | Mortgage protection life insurance (MPI)A type of life insurance that helps pay off your mortgage balance if you die during the policy's term | Private mortgage insurance (PMI)A type of mortgage insurance that protects the lender if you default on your home loan | Term life insuranceA type of life insurance that pays a set death benefit to your chosen beneficiary if you die during the policy's term (commonly 10, 20, or 30 years) |
| Beneficiaries | Mortgage protection life insurance (MPI)Lender receives the payout | Private mortgage insurance (PMI)No beneficiary | Term life insuranceYou choose your beneficiaries, such as a spouse, children, other loved one, or charity |
| Payout flexibility | Mortgage protection life insurance (MPI)Low flexibility; the payout only pays off the mortgage balance | Private mortgage insurance (PMI)No death benefit for you or your loved ones | Term life insuranceHigh flexibility; beneficiaries can use the death benefit to pay for the mortgage, outstanding bills, funeral costs, and more |
| Coverage amount | Mortgage protection life insurance (MPI)Starts at your mortgage balance and decreases as you pay off your home loan | Private mortgage insurance (PMI)Varies based on the loan amount and lender's risk | Term life insuranceYou choose the coverage amount, which typically doesn't change over the policy's term |
| Premium cost | Mortgage protection life insurance (MPI)Usually fixed; may be more expensive than term life insurance | Private mortgage insurance (PMI)Added to your mortgage payment; depends on your down payment, loan amount, and credit score | Term life insuranceMore affordable than MPI for healthy applicants, especially if you need higher coverage |
| Medical exam | Mortgage protection life insurance (MPI)No, but you may need to answer a few health questions | Private mortgage insurance (PMI)No | Term life insuranceMay require a medical exam, but no-exam policies are available |
| Is it required? | Mortgage protection life insurance (MPI)No | Private mortgage insurance (PMI)Usually required on conventional loans when the down payment is less than 20% | Term life insuranceNo |
When should you consider mortgage protection life insurance?
Mortgage life insurance isn't right for everyone. It's important to know when it may be worth considering and when an alternative might be a better fit.
You may want to consider MPI if:
- You have trouble qualifying for term life insurance due to a pre-existing condition
- You want coverage specifically to pay off your mortgage if you die
- You don't want a policy that requires a medical exam
- Your dependents would struggle to pay off your mortgage if you die
You might not want to consider MPI if:
- You want payout flexibility for your beneficiaries (for use on mortgage, bills, burial costs)
- You want fixed coverage, instead of one that decreases over time
- You want a more cost-effective option, like term life insurance
How can I use term life insurance to cover my mortgage?
You can use term life insurance to help pay off your mortgage if you pass away during the policy's term. With term life insurance, the death benefit is typically not taxable and can support your loved ones financially. Your chosen beneficiaries (like a spouse or children) may use the payout to cover expenses like:
- Mortgage or rent
- Medical or credit card bills
- Student loans
- Education expenses
- Savings
- Funeral or burial costs
If you want your term life insurance policy to cover your mortgage, consider selecting a term length that aligns with your mortgage term — like 10, 15, 20, or 30 years. You may also want to select a coverage amount that is large enough to pay off your home loan, as well as other expenses your family might be responsible for upon your death.
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