The offers on this page are from advertisers who pay us. That may influence which products we write about, but it does not affect what we write about them. Here's an explanation of how we make money and our Advertiser Disclosure.

Do you need mortgage protection insurance?

Yahoo Personal Finance· Getty Images
5 min read

Mortgage protection insurance will pay off your mortgage if you pass away with an outstanding balance. This type of insurance policy can give you peace of mind by ensuring that your family can keep the house rather than having to take over the monthly mortgage payments or sell the home in the event of your death.

But is mortgage protection insurance worth it, or are there better ways for a homeowner to protect their home and loved ones? Here’s what you need to know about this type of mortgage insurance policy.

In this article:

What is mortgage protection insurance?

How mortgage protection insurance works

How much is mortgage protection insurance?

Is mortgage protection insurance worth it?

FAQs

Mortgage protection insurance — also called MPI, mortgage protection life insurance, or mortgage life insurance — is a type of life insurance policy specifically for homeowners. With mortgage protection insurance, your mortgage lender is listed as your beneficiary. If you die before paying off your mortgage, your policy will pay off your remaining balance with a direct payment to the lender.

Some mortgage protection insurance policies also offer payment protection for a limited time if you lose your job or experience a disability during the term, although that is not necessarily standard with all policies.

Tip: Don’t confuse mortgage protection insurance (MPI) with private mortgage insurance (PMI). Mortgage protection insurance is a voluntary policy that homeowners purchase to protect their family members from the financial consequences of an untimely death. Private mortgage insurance, on the other hand, is a type of mortgage insurance for conventional loans that guards the lender in case you default on your mortgage. Home buyers who make a down payment of less than 20% on a conventional loan are required to purchase PMI.

Read more: How to get rid of PMI

Like traditional term life insurance, mortgage protection life insurance requires the policyholder to pay mortgage insurance premiums for a specific term — often the same as your mortgage repayment schedule. If you pass away during the term, the insurer will pay your mortgage lender the remaining balance of your mortgage.

But unlike term life insurance, which provides the same death benefit regardless of when you die during the term, the death benefit for mortgage protection insurance goes down over time as you pay off your mortgage. And even though the total death benefit you can expect from your mortgage protection insurance gradually decreases, you will typically pay the same premium for the entire term.

Another essential difference between mortgage protection insurance and traditional life insurance is the lack of medical underwriting. To qualify for traditional life insurance, you must pass a medical exam. But mortgage protection insurance is generally guaranteed, meaning anyone can qualify. As a result, mortgage protection insurance can be a good fit for homeowners with health problems or other risk factors that limit their eligibility for regular life insurance.

Homeowners interested in mortgage protection insurance usually buy the policy when they buy the home. However, you may have up to 24 months after buying your house to purchase a policy. You can access a policy through your mortgage lender or an insurance provider.

Learn more: Best mortgage lenders for first-time home buyers

The exact cost of this kind of insurance policy varies depending on the size of your home loan and the length of your mortgage term. Some insurers may also consider your age and life circumstances. According to Nolo.com, premiums for mortgage protection insurance typically range from $20 to $100 per month.

Since mortgage protection insurance is guaranteed, the cost for this coverage is usually higher than that of a comparable traditional life insurance policy. This is especially true for homeowners who could easily qualify for traditional life insurance.

Dig deeper: How much money do I need to buy a house?

Mortgage protection insurance is not the best fit for everyone. Traditional life insurance can offer the same kind of financial protection for your family but at a lower price than mortgage protection insurance and with the added flexibility of allowing your loved ones to make their own decisions about the money they receive.

It could be right for older homeowners or those with preexisting health conditions or high-risk jobs because they could face higher premiums on traditional life insurance. Since such homeowners are unlikely to qualify for affordable life insurance, mortgage protection insurance can ensure their family can keep the house if they pass away.

Learn more: How does title insurance work?

A mortgage protection insurance policy pays off your remaining home loan balance in the event of your death. The payout goes directly to your mortgage lender, not your heirs, and the death benefit declines over time as you pay down your mortgage loan, even though your mortgage insurance premiums will generally remain the same.

Premium costs for mortgage protection insurance will vary depending on the size of the mortgage, the mortgage term, and the policyholder's age and life circumstances. Homeowners can generally expect to spend between $20 and $100 per month on this coverage, which will likely be more expensive than a comparable term life policy.

An outstanding mortgage remains in force if the homeowner dies. In most cases, the spouse or heir of the deceased will take over the mortgage payments and keep the house. But if the surviving family members cannot pay the mortgage, the house will go into foreclosure. Both traditional life insurance and mortgage protection insurance can give families a way to pay off an outstanding mortgage if the homeowner dies.

This article was edited by Laura Grace Tarpley