Mortgage Protection Insurance (MPI): Coverage, Costs and Alternatives
Buying a home is a huge financial commitment, and your mortgage payment is likely one of your biggest monthly expenses. So, what happens if you die before the loan is paid off?
Mortgage protection insurance (MPI) is designed to help cover your mortgage balance if you die or, depending on the policy, become unable to make payments because of a qualifying disability. With a mortgage protection policy, the death benefit is generally used to pay some or all of the remaining home loan balance, helping your family stay in the home without taking on the mortgage payments themselves.
This type of coverage can provide peace of mind, but it isn’t the same as homeowners insurance or private mortgage insurance (PMI). Whether it’s worth buying depends on your finances, existing life insurance coverage and how much protection your family would need to keep the home.
- Mortgage protection insurance pays off your remaining home loan balance if you die or become disabled.
- The insurance payout is made directly to the mortgage lender, rather than a beneficiary of your choice.
- Life insurance policies can sometimes achieve the same goal while allowing for more spending flexibility.
How does mortgage protection insurance work?
MPI is designed to help pay off your home loan if you die or become unable to work due to a covered disability.
You pay a monthly premium for the policy, and if you meet the policy’s requirements, the insurer provides a benefit that can be used toward your mortgage. Coverage typically lasts for a set period and may be available when you take out a new mortgage or any time thereafter.
What does MPI cover?
The type of protection you get depends on the policy, but common coverage includes:
- Death: A death benefit may pay some or all of your remaining mortgage balance if you die.
- Disability: Some policies help make mortgage payments if a covered disability prevents you from working.
- Involuntary unemployment: Certain policies may temporarily cover mortgage payments if you lose your job through no fault of your own.
How are benefits paid?
With death coverage, the insurer may pay the benefit directly to your mortgage lender, reducing or eliminating the remaining loan balance. Disability and unemployment coverage typically help with monthly mortgage payments for a limited period, subject to the policy’s terms, exclusions and waiting periods. Because coverage varies widely, it’s important to understand exactly what a policy covers before buying it.
How much does mortgage protection insurance cost?
MPI can cost anywhere from about $10 to $150 or more per month, depending on the policy and your personal circumstances. Unlike homeowners insurance, which protects your property, MPI is designed to help protect your ability to repay your mortgage if certain unexpected events occur.
Factors that impact MPI costs include:
- Age: Younger applicants generally pay less because they tend to have a lower risk of dying during the policy term. Premiums typically increase as you get older.
- Health: Your health and medical history can affect coverage costs, particularly for policies that require health information or a medical exam. Some MPI policies may not require a medical exam but can cost more as a result.
- Mortgage balance: The amount you owe on your home can affect your premiums. A larger mortgage generally means you need more coverage, which can increase the cost.
- Coverage amount and type: A policy that only provides a death benefit may cost less than one that also includes disability or unemployment protection. More extensive coverage generally comes with higher premiums.
- Policy term: The length of your coverage can also affect what you pay. A longer policy term may cost more, although your premium can depend on the insurer and type of policy.
Where to buy mortgage protection insurance
If you decide that buying an MPI policy is the right choice for you, here’s a closer look at where you can find coverage:
- Your mortgage lender: Mortgage lenders may offer MPI as part of their total package of services. Ask your loan servicer about opportunities to add on coverage.
- A life insurance provider: Often called “mortgage life insurance,” many life insurance providers also offer MPI. Depending on the provider, you can purchase it separately or as part of another life insurance policy.
- An insurance broker or third-party insurance company: Insurance brokers and insurance companies may also sell MPI policies.
How MPI differs from other types of mortgage insurance
| Mortgage protection insurance (MPI) | Private mortgage insurance (PMI) | Mortgage insurance premiums (MIP) | Homeowners insurance | |
|---|---|---|---|---|
| What it protects | Helps protect your ability to repay the mortgage | Protects the lender if you stop making payments | Protects the lender if you stop making payments | Protects your home and belongings |
| Who benefits | You or your beneficiaries | Your mortgage lender | Your mortgage lender | You and your mortgage lender |
| When it applies | Death or other covered events, depending on the policy | When your home down payment is less than 20% and you’re using a conventional loan | Required with an FHA loan | Typically required by your mortgage lender |
| How it pays | May pay off some or all of the mortgage or help cover payments | Doesn’t pay your mortgage or reduce your loan balance | Doesn’t pay your mortgage or reduce your loan balance | Helps pay for covered damage or losses to your home |
| How long you pay | Depends on the policy and coverage term | Usually until you build enough equity to cancel it, subject to the loan’s rules | Generally for the life of an FHA loan, although certain borrowers may be able to stop paying it earlier | As long as you own the home and maintain coverage |
Private mortgage insurance
Private mortgage insurance, or PMI, protects your lender, not you, if you stop making payments on a conventional mortgage. It’s typically required when you put less than 20% down on a home, although requirements can vary by lender and loan.
Unlike MPI, PMI doesn’t pay off your mortgage if you die or become disabled. Instead, it reduces the lender’s risk if you default on the loan. You generally pay PMI as part of your monthly mortgage payment until you have enough equity to cancel it, subject to your loan’s terms.
Mortgage insurance premiums
Mortgage insurance premiums, or MIP, are the FHA loan equivalent of PMI. MIP protects the lender if you default on an FHA-insured mortgage rather than providing financial protection for you or your family.
FHA borrowers generally pay MIP in two ways:
- Upfront MIP: A one-time premium typically charged when you take out the loan.
- Annual MIP: An ongoing premium that’s divided into monthly payments.
Depending on the loan’s terms and your down payment, you may have to pay annual MIP for the life of the loan.
Homeowners insurance
Homeowners insurance protects you and your property, rather than your lender’s financial interest in the mortgage. It can help pay for covered damage to your home and belongings and may provide liability protection if someone is injured on your property.
Most mortgage lenders require homeowners insurance as a condition of the loan. Your coverage generally needs to remain active for as long as you have a mortgage, making it an ongoing cost of homeownership. Unlike MPI, homeowners insurance doesn’t pay off your mortgage if you die or can’t make payments.
Pros and cons of mortgage protection insurance
Pros
- No medical exam (usually): Life insurance policies often require a medical exam, which means you can be denied coverage if you have certain health conditions. MPI often comes without any requirements for medical exams, so it can be a good option if you’re unable to get a traditional life insurance policy.
- Peace of mind: You can rest assured knowing that one of your largest assets will be kept safe if you die or can no longer work.
- Simplicity: Since the insurance payout goes directly to your mortgage lender, your loved ones won’t have to worry about scrambling to pay off your mortgage.
Cons
- Shrinking coverage: As your mortgage balance decreases, so does your potential payout — even though your MPI premiums will likely stay the same.
- Lack of flexibility: MPI pays off your remaining mortgage balance and nothing else. Your loved ones won’t have the same flexibility to cover other expenses as they would with a standard life insurance policy.
- More expensive: Since MPI often has more flexible underwriting criteria (no medical exam) than most life insurance policies, coverage tends to be more expensive.
Do you need mortgage protection insurance?
The answer to whether MPI is necessary will be different for everyone.
In most cases, it’s possible to achieve similar results with a traditional life insurance policy. As long as you purchase enough coverage, you’ll have the flexibility to pay off your mortgage and cover other costs, like funeral expenses or student loan debt.
However, if you’re unable to qualify for a standard life insurance policy or can’t afford sufficient coverage, MPI may be a good option. It can also be an asset if you ever worry about losing your income because of a disability.
Alternatives to mortgage protection insurance
If you’re considering MPI, it’s worth comparing it with other ways to protect your family.
- Term life insurance: Term life insurance can provide a death benefit to your beneficiaries if you die during the policy term. Unlike MPI, the money isn’t restricted to paying your mortgage, so your family can use it for other expenses, too.
- Long-term disability insurance: Disability insurance can replace part of your income if you become unable to work because of a covered disability. This can help you cover your mortgage payments and other living expenses.
- Employer-provided life insurance: Some employers offer life insurance as an employee benefit, which can provide financial support to your family if you die. However, coverage may be limited and may not follow you if you leave your job.
- Emergency savings: A healthy emergency fund can give you money to cover mortgage payments and other expenses after an unexpected job loss or financial setback. The benefit is that you can use the money for whatever you need without waiting for an insurance claim.
- A combination of coverage: You don’t necessarily have to choose one option. Depending on your situation, a combination of life insurance, disability coverage and savings may provide broader protection than an MPI policy alone.
Frequently asked questions
MPI is generally separate from your mortgage payment and isn’t automatically included in your loan. You typically pay the insurance company a separate monthly premium for your coverage. Be sure to check your policy and mortgage documents to see exactly how your payments are handled.
Yes, you can buy MPI after closing on your home. You don’t necessarily have to purchase a policy when you take out your mortgage, although eligibility and pricing can depend on the insurer and your circumstances. Shopping around can help you compare coverage and costs before choosing a policy.
MPI is designed specifically to help protect your mortgage, while life insurance provides a death benefit your beneficiaries can use however they choose. With MPI, the benefit may be used to pay down or pay off your mortgage depending on the policy. Term life insurance can offer more flexibility because your family can use the death benefit for mortgage payments, living expenses or other financial needs.
The amount paid depends on the policy’s coverage and terms. Some policies are designed to pay the remaining mortgage balance if you die, while others provide a smaller benefit or only cover mortgage payments for a limited period. Review the policy’s benefit amount, exclusions and other terms before buying coverage.
You can typically cancel an MPI policy by contacting the insurance company and requesting cancellation. You can also stop paying the policy’s premiums. However, canceling your coverage means you’ll no longer have the protection the policy provides, so consider whether you have another way to cover the financial risk first.
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