Why Homeowners Want Mortgage Life Insurance
Why it matters
- Mortgage protection insurance is a type of term life insurance designed to take care of your mortgage, so loved ones won’t have to worry about paying it off.
- Life insurance helps lessen the financial burden for loved ones after you die.
- Term life insurance is typically a less expensive type of life insurance than whole life insurance because you only have it for a set period of time, or term.
When someone relies on you to pay bills — whether it’s children, a partner, or even your home lender — consider buying life insurance to prepare for the worst. A type of term life insurance known as mortgage life insurance can help your loved ones cover a mortgage and stay in your home if something happens to you.
In the best-case scenario, you will never have to use it. But if you die unexpectedly within the time period, or term, covered by your term life insurance policy, your beneficiaries would get a payout that can help cover bills, final expenses, and debt, like that hefty mortgage.
What is mortgage protection insurance (MPI)?
MPI is a specific type of life insurance that helps ease your survivors’ burden of paying off your mortgage if the worst happens. Typically, your mortgage lender is the beneficiary. You’ll pay a monthly premium for coverage for the term of your mortgage. So, if you have a 30-year mortgage, you could buy an MPI policy that also covers 30 years. The payout decreases over time as you pay off the mortgage, which is why MPI is known as “decreasing term insurance.”
How term life insurance can help protect a mortgage
Some people also consider choosing term life insurance to cover their mortgage instead of MPI. Here, the death benefit stays level or remains the same, regardless of the amount left on your mortgage. Money can be paid to your chosen beneficiaries to use to help pay off the mortgage as well as cover final expenses, donate to charities, cover education costs, pay debt, and more.
Because term life insurance only covers a set period of time, it’s typically less expensive than whole life insurance. Like other kinds of insurance, life insurance comes with ongoing charges and/or fees. Your financial advisor can help you determine whether term life insurance or MPI is right for you.
Mortgage protection insurance should not be confused with private mortgage insurance, which a lender or mortgage broker may ask you to purchase when you buy your home.
Private mortgage insurance (PMI) vs. MPI or term life insurance
PMI and MPI are very different things. Generally, lenders often require PMI if your down payment is less than 20%. It protects the lender if you default on your loan. MPI or a form of term-life insurance for mortgage protection is something homeowners choose to buy to help protect loved ones, providing money to help pay off the mortgage upon the homeowner’s death.
Why consider mortgage protection insurance right now?
Home prices have been rising, with the average sale price in the U.S. topping $500,000, according to federal government data.1 That translates into a sizable home loan for many homebuyers. In fact, the average mortgage debt in 2021 was $220,380, according to Experian.2 Would your survivors be able to cover mortgage payments if you die before you’ve paid it off?
If not, then there are two main reasons you might want to consider mortgage life insurance:
You may provide your loved ones with a paid-off home
Many families are juggling financial priorities, from daily expenses to college funds to retirement savings. This year, inflation has been busting budgets for groceries, gasoline, and utilities, which may be eating into the amount families can put into their savings accounts. Mortgage life insurance may help to provide your survivors with badly needed relief in a time of grief by paying off the mortgage if you should pass unexpectedly.
It’s relatively easy to qualify for mortgage life insurance
Insurers often do not require you to undergo a medical exam to qualify for insurance. In fact, a quicker type of underwriting that may be available can put you on the express track to obtaining a term life policy with a death benefit that can be used for paying off the mortgage. If you have good credit, the chances of qualifying for a policy go up.3
This faster underwriting doesn’t guarantee coverage but can speed up an insurer’s underwriting process so you can obtain coverage more quickly, if you qualify.
Things to consider
- Insurance is meant to protect you and your loved ones in case of emergency.
- If your family depends on your salary to help pay the mortgage, you may want to talk to your financial professional about using term life insurance as an option to help with your mortgage should you die.
- If you have good credit and are healthy, it should be relatively easy to qualify for coverage.
1 “Average Sales Price of Houses Sold for the United States,” Federal Reserve Bank of St. Louis, April 2022
2 “Consumer Debt Continued to Grow in 2021 Amid Economic Uncertainty,” Experian, April 2022
3 “Accelerated Underwriting Makes Life Insurance Easy,” Investopedia, May 2022
Transamerica Resources, Inc. is an Aegon company and is affiliated with various companies which include, but are not limited to, insurance companies and broker dealers. Transamerica Resources, Inc. does not offer insurance products or securities. The information provided is for educational purposes only and should not be construed as insurance, securities, ERISA, tax, investment, legal, medical or financial advice or guidance. Please consult your personal independent professionals for answers to your specific questions.