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What Is Mortgage Protection Insurance?

Mortgage Protection Insurance (MPI) is a type of insurance policy that covers your monthly mortgage payments if you pass away unexpectedly. Mortgage protection insurance — also referred to as mortgage life insurance — does not take the place of traditional term or permanent life insurance. 

While traditional term life insurance covers a myriad of expenses via a tax-free sum known as a death benefit paid to your beneficiaries, mortgage protection insurance covers your monthly mortgage payments only if you pass away. It is designed to protect your family and loved ones from having to sell or lose their property due to the loss of your income.

How Does Mortgage Protection Insurance Work?

Mortgage protection insurance pays off the balance of your mortgage in the event you die, and the policy is typically sold through banks and mortgage lenders. Because the lender or bank is named as the beneficiary, the total balance of your house goes to the mortgage servicer listed, not your loved ones. The payoff balance on your house matches the policy coverage, so the amount decreases over time. 

What Does Mortgage Protection Insurance Cost?

Mortgage protection insurance prices vary widely, and it can be difficult for consumers to get a policy quote online compared to other forms of insurance. Generally, mortgage protection insurance costs more than traditional term or permanent life insurance. 

Term Life Insurance vs. Mortgage Protection Insurance

Mortgage protection insurance operates the same way as a regular term life insurance policy. You buy a plan for a set period of time, pay your monthly premiums and in case of your passing, the death benefit is paid out directly to your beneficiary.

The fundamental difference is that your mortgage protection insurance beneficiary is the bank or mortgage lender. Under a traditional term life insurance policy, you get to designate a beneficiary. 

The benefit to regular term life insurance is that your loved ones can choose to skip paying off the mortgage with the death benefit, and instead use the funds as they see fit. A mortgage protection life insurance policy means your mortgage is paid off, even if there are other expenses that take precedence over the house payment. One of the biggest benefits to mortgage protection insurance is that the coverage amount equals your mortgage balance. Unlike regular term life insurance, there’s usually no life insurance medical exam required to buy a policy. 

Mortgage protection insurance is a great way to protect your home assets if you’re denied for traditional term life insurance coverage. A mortgage protection policy can also be used to supplement term life insurance or permanent life insurance. For instance, if your mortgage loan is paid off with funds from the mortgage protection insurance policy, your loved ones can allocate the death benefit from your traditional life insurance policy for other bills and expenses. 

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