As a proud homeowner, you want to protect your investment. You keep up with regular maintenance and have a homeowners insurance policy. Likewise, you protect your family with a life insurance policy. But, you have one more option when it comes to protective measures. For instance, mortgage protection insurance can add an extra level of protection for your family if you pass away before paying off the mortgage.
Before buying mortgage protection insurance, the following factors should be considered.
What Is Mortgage Protection Insurance?
Mortgage protection insurance is a term policy where your mortgage lender is the beneficiary. If you pass away, it pays off your mortgage debt. Also known as mortgage protection insurance (MPI), or mortgage protection life insurance. Lenders do not require MPI, but it can be beneficial for people who don’t have life insurance.
MPI is often confused with private mortgage insurance (PMI) however they are very different policies. PMI covers your loan in the event of payment default if you are unable to work after an accident. PMI will help you avoid foreclosure, but it does not pay your mortgage if you die. Typically, PMI is required on loans when less than a 20% down payment is made.
How Does MPI Work?
The face amount of mortgage life insurance is equal to the balance of your mortgage loan. The insurance goes into effect the day it is issued, and there are no eligibility requirements. You’ll pay a monthly premium to keep the coverage current. If you were to die, the insurance pays your lender the amount still owed on your mortgage.
Many insurers have limits on when you can buy MPI. They may require you to buy the insurance within 24 months after closing on loan when purchasing your home.
MPI provides peace of mind for people who don’t qualify for a life insurance policy. This type of coverage prevents the debt from falling to your loved ones. However, mortgage life insurance isn’t right for everyone. Here are some pros and cons of MPI to consider before making a decision.
Pros of MPI
If you don’t have life insurance or can’t qualify due to health problems, an MPI policy will give you the sense of security you need. Your home is your biggest asset, and the mortgage is your main expense. MPI assures you that your family won’t be burdened with the payments if you should die.
MPI may also offer other benefits, including return-of-premium and living benefit riders. However, there are stipulations and extra costs involved, so read the fine print carefully.
Cons of MPI
Mortgage protection insurance is limited to paying off your mortgage. In comparison, a standard life insurance policy can replace income, cover funeral costs, pay off other loans, and provide for other financial needs.
MPI is typically more expensive than a standard term life insurance. Furthermore, the premiums can increase after a certain specified period. Also, the coverage decreases as you pay down your mortgage. Instead, with a level-term policy, your coverage amount stays the same as your mortgage decreases. As a result, your family will receive the benefits upon your death. The death benefit may be enough to finish paying the mortgage and have funds left over for other things.
How to Get Mortgage Protection Insurance
Do you think mortgage protection insurance is right for your needs? If so, there are a few different ways to buy a policy:
- A mortgage lender – When you close on your loan, the lender may offer a mortgage protection policy. If your lender doesn’t offer MPI, you can ask your realtor for a referral.
- A private insurance company – Depending on the state where you reside, several private insurance providers may specialize in MPI policies.
- A life insurance company – Many life insurance companies also offer MPI. If you have life insurance, you can bundle your life and MPI policies together to save money.
Like other types of insurance, you can cancel an MPI policy at any time. But, you won’t be refunded any of the money you’ve paid in.
The cost of MPI varies depending on the balance of your mortgage loan and the length of the loan term. In general, a bare minimum policy will cost around $59 a month. It may be worth the cost if you don’t qualify for life insurance due to long-term health conditions or a high-risk job.
Contact Sandifer Insurance Agency to Learn More About MPI
Finding the most affordable and reliable insurance can be a hassle, but Sanifer Insurance can make the process easier. We have over 40 years of experience in helping people find the right insurance for their needs that is within their budget.
Sandifer is a family-owned local company that takes pride in helping families protect their homes and loved ones. We serve customers in Cheraw, SC, and the surrounding areas, and look forward to assisting you and your family.
Contact Sandier by phone, email, or online. We can help you with all of your insurance needs including home, life, auto, farm, and commercial insurance.
Sources:
forbes.com/ – Mortgage Life Insurance: coverage & Benefits Explained
consumerfinance.gov/ – What is Private Mortgage Insurance?