Mortgage protection insurance is a type of life insurance policy that covers your mortgage principal and interest payments under a variety of scenarios, including the death of the policy holder. It’s no surprise that this optional insurance coverage sounds incredibly appealing to many homeowners. But before you dive into this option, it’s worth knowing that there are times where it really matters – and instances where it truly doesn’t. In this brief article about mortgage protection insurance (MPI), we’ll discuss the advantages and drawbacks of such life insurance policies.
Mortgage Protection Insurance Pros
- MPI covers the principal and interest on a mortgage if the policy holder becomes too ill or injured to work, experiences a lengthy lapse in employment, or dies.
- Approval rates for this type of policy is high.
- If you work in a high-risk career that prevents you from getting disability insurance, MPI can save your mortgage in the event of the unexpected happening to you.
- If you’ve got health problems that make getting a life insurance policy difficult or too expensive, MPI will still protect your mortgage costs.
- You can choose who you get your mortgage protection insurance policy from. Your mortgage lender may offer it, but you are free to shop around without worrying about penalties.
Mortgage Protection Insurance Cons
- MPI only covers the principal and interest on a mortgage. It will not cover anything toward homeowner’s association fees, property taxes or the existing homeowner’s insurance policy.
- If you’ve taken out a home equity line of credit (aka a HELOC) or any other type of loan against the equity of your home, your MPI policy will not apply to that.
- If your mortgage is nearly paid off, getting mortgage protection insurance is essentially a waste of money. This type of policy is best purchased earlier in the mortgage’s term. You’re better off putting the funds away into a savings account.
- In the event of the policy holder’s death, the money does not go to any beneficiary. Instead, the funds are returned to the lender, who will then use the policy to pay off the remaining principal and interest on the mortgage. A term life insurance policy, on the other hand, allows a beneficiary to receive the funds and determine how they are spent.
Ultimately, it is up to you to determine whether a mortgage protection insurance policy is the best route for you to take. Discuss with your lender or an insurance policy provider to weigh your options.
