Is Mortgage Protection Insurance a Good Idea?

If your home is one of the largest investments you’ve made, you probably want to protect it. What happens if you can’t make your payments due to a long-term illness or job loss? Worse yet, what if you pass away? Will your family still be able to maintain the payments?

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Mortgage protection insurance helps protect you in each of these situations, but is it worth it? Keep reading to find out more about it

What Does Mortgage Protection Insurance Do?

First, let’s look at how mortgage protection insurance works. Like life insurance, MPI protects your loved ones should you die prematurely. The insurance covers the balance of your mortgage so that your loved ones can continue to live there. In some rare cases, MPI can also cover you in the event that you become chronically ill or permanently disabled, but that’s less common.

Unlike life insurance, though, your lender is the beneficiary of your mortgage insurance protection policy. If you die and the insurance company pays out a benefit, they pay it to the lender. While this does pay off your mortgage, giving your loved ones peace of mind, they don’t receive the payout themselves.

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Reasons to Get Mortgage Protection Insurance

Mortgage protection insurance gets a bad rap, but there are some benefits.

  • There’s no underwriting – Life insurance relies on the underwriter’s findings. They look at your health and lifestyle to determine if you are a good candidate. Mortgage protection insurance doesn’t require underwriting. In other words, it doesn’t depend on the status of your health or your lifestyle. This can be good for those that can’t get approved for life insurance.
  • You get peace of mind – Mortgage protection insurance can help you sleep at night knowing that your loved ones will still have the house should you die prematurely. Some people need that reassurance in order to feel good about themselves.
  • You don’t have to make choices – With life insurance, the beneficiaries receive the money as one lump sum. It’s up to them to figure out how to use the money. With MPI, the payout goes directly to the lender. There are no decisions to make. The insurance company pays the mortgage and your loved ones keep the house.

Reasons Not to get Mortgage Protection Insurance

  • It’s expensive – In most cases, mortgage protection insurance is more expensive than life insurance. If you are healthy and lead a ‘normal’ lifestyle, it’s worth comparing the cost of MPI and term life insurance. You’ll likely find that MPI premiums are much higher than standard life insurance premiums.
  • It has declining coverage – If you make your mortgage payments on time, you decrease your principal balance. Your mortgage protection insurance coverage will decrease accordingly as well. What doesn’t decrease is your premium, though. You pay the same amount for less coverage.
  • You can’t pay for ‘other things’ – The proceeds from the MPI only pay the mortgage balance. Unlike life insurance, you don’t get to pick and choose where the money goes. In other words, your family may still get to keep the house, but they can’t use the remaining proceeds to cover funeral or burial costs.

In short, mortgage protection insurance is best for those that can’t get traditional life insurance. It can give you peace of mind, knowing that the home will be covered should you pass away suddenly. The premiums are typically pretty expensive, though, so make sure that you shop around to find the policy with the best coverage at the best prices.

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Justin McHood is a managing partner at Suited Connector and has been recognized by national media outlets as a financial expert for more than a decade.

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