Mortgage Insurance: Cheap Life Insurance For Your Home

Shawn Plummer

CEO, The Annuity Expert

What is Mortgage Protection Insurance?

Mortgage insurance, also known as Mortgage life insurance, is a type of life insurance policy that pays off your mortgage if you die before the loan is paid off. 

Mortgage debt is on the rise

63% of homeowners in the U.S. have a mortgage. The average new mortgage balance in the United States is $260,386 and these numbers are increasing every year. With debt, it can be hard for someone to pay back what is owed if they are not able to finish their payments which is why it’s important to get coverage.

How mortgage protection insurance works

Lenders like mortgage life insurance because when you die, they are the ones who get paid. With a normal life insurance policy, your beneficiaries will get the money from it. But with a mortgage insurance policy, your beneficiary is the lender – and they will be paid back any money left on your mortgage balance.

The death benefit from the mortgage life insurance decreases as the homeowner pays off the mortgage.

Is mortgage protection insurance required?

Mortgage protection insurance is not required. It’s different than private mortgage insurance (PMI), which many banks or lenders will require you to buy.

Do you need mortgage protection insurance?

The inflexibility of mortgage life payouts means you’re usually better off with a regular term policy with enough coverage to pay off your mortgage. Then, when you die, your family has options:

You do not need mortgage protection insurance, and you are better off with a level-term life insurance policy. The term policy provides your family with a few options:

  • Your surviving family members can pay off the mortgage with the life insurance proceeds then keep the remainder of the death benefit.
  • They can choose not to pay off the home and continue making payments like normal, having plenty of liquid assets at their disposal.

Why you shouldn’t buy mortgage protection insurance

  • Lack of flexibility
  • Declining death benefit

Term life insurance is a better option because it has benefits like mortgage protection insurance but has lower premiums, and beneficiaries can have more flexibility.

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Mortgage Protection Life Insurance (MPI) vs. Term Life Insurance

Mortgage protection life insurance (MPI)

MPI is designed around your mortgage debt. It is often sold during the home buying process. If you pass away while the policy is active, the pay-out goes to your lender for the outstanding balance. Usually, as you pay off your mortgage and your balance owed goes down, then so does your coverage amount.

MPI Pros

  • No medical exam
  • Most people qualify

MPI Cons

Term life insurance

Term insurance is a type of life insurance that lets you choose the beneficiary, the amount of coverage, and how long it lasts. Term insurance provides coverage for a set period of time. It can be used to cover your dependents’ needs or other expenses like college tuition and medical bills.

Term Insurance Pros

  • Covers all life expenses (up to your coverage limit during the policy term)
  • Your beneficiary receives the benefit
  • Rates are based on your unique life’s circumstance
  • Payout amount doesn’t reduce over time while the coverage is active

Term Insurance Cons

MPI vs. Term Insurance: Which is better?

A term policy is a good choice for many families because you can choose the amount of coverage, your beneficiaries, and what length your financial commitments are.

MPI is a better option than term life insurance when you can’t qualify for it. This might happen if you have medical issues and need an exam.

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Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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