What is mortgage protection life insurance?
Mortgage protection life insurance (MPI) is a type of life insurance that helps pay off your home loan if you die. MPI isn't the same as private mortgage insurance (PMI), which helps protect the lender if you can't make payments on your mortgage. MPI is also different from term life insurance. MPI pays the lender and decreases as you pay off your mortgage, while term life insurance pays out a set death benefit to your beneficiaries. They can use the death benefit to pay off your mortgage, credit cards, funeral costs, or other expenses.
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Key takeaways
MPI helps pay your mortgage balance if you die, and PMI protects the lender if you miss mortgage payments
While term life pays a fixed death benefit that your beneficiaries can use to pay expenses, MPI pays the lender directly and decreases over time
What is whole life insurance?
A whole life insurance policy offers lifelong coverage and a death benefit that your beneficiaries may claim regardless of when you pass away (if you have paid your premium on time). It's the most common type of permanent life insurance.
Is whole life insurance right for me?
Whole life might appeal to you if you're seeking permanent coverage that has set premium payments and a fixed interest rate on the policy's cash value. These policy features make whole life more predictable than universal life insurance, requiring less management overall.
What is universal life insurance?
Universal life insurance, also called UL or adjustable life insurance, is also permanent and will last until you pass away if your premium payments are up to date. Unlike a whole life policy, UL includes features that allow you to adjust your policy. For example, you can increase or decrease your premium or even skip payments if your cash value amount can cover the payment for you. Additionally, the cash value of a universal life policy can increase your death benefit when you pass away.
Is universal life insurance right for me?
Universal life policies are best if you want permanent coverage and a more hands-on approach to managing your life insurance policy. Its cash value carries greater risk and possibly more fees but greater potential reward.
How interest rates differ between whole and universal life insurance
One of the key features of permanent life insurance is the policy's cash value, which grows over time and allows you to borrow from it in the form of a life insurance policy loan.
With a whole life policy, the money from the cash value will grow at a fixed rate, making it simpler and more predictable than other permanent life insurance types.
With a universal life policy, the cash value has an interest rate that's partially based on market conditions and will change over time. You'll have a guaranteed minimum interest rate, though.
| Category | Mortgage protection life insurance (MPI) | Private mortgage insurance (PMI) | Term life insurance |
|---|---|---|---|
| Definition | Mortgage protection life insurance (MPI)A type of life insurance that helps pay off your mortgage balance if you die during the policy's term | Private mortgage insurance (PMI)A type of mortgage insurance that protects the lender if you default on your home loan | Term life insuranceA type of life insurance that pays a set death benefit to your chosen beneficiary if you die during the policy's term (commonly 10, 20, or 30 years) |
| Beneficiaries | Mortgage protection life insurance (MPI)Lender receives the payout | Private mortgage insurance (PMI)No beneficiary | Term life insuranceYou choose your beneficiaries, such as a spouse, children, other loved one, or charity |
| Payout flexibility | Mortgage protection life insurance (MPI)Low flexibility; the payout only pays off the mortgage balance | Private mortgage insurance (PMI)No death benefit for you or your loved ones | Term life insuranceHigh flexibility; beneficiaries can use the death benefit to pay for the mortgage, outstanding bills, funeral costs, and more |
| Coverage amount | Mortgage protection life insurance (MPI)Starts at your mortgage balance and decreases as you pay off your home loan | Private mortgage insurance (PMI)Varies based on the loan amount and lender's risk | Term life insuranceYou choose the coverage amount, which typically doesn't change over the policy's term |
| Premium cost | Mortgage protection life insurance (MPI)Usually fixed; may be more expensive than term life insurance | Private mortgage insurance (PMI)Added to your mortgage payment; depends on your down payment, loan amount, and credit score | Term life insuranceMore affordable than MPI for healthy applicants, especially if you need higher coverage |
| Medical exam | Mortgage protection life insurance (MPI)No, but you may need to answer a few health questions | Private mortgage insurance (PMI)No | Term life insuranceMay require a medical exam, but no-exam policies are available |
| Is it required? | Mortgage protection life insurance (MPI)No | Private mortgage insurance (PMI)Usually required on conventional loans when the down payment is less than 20% | Term life insuranceNo |
When should you consider mortgage protection life insurance?
Mortgage life insurance isn't right for everyone. It's important to know when it may be worth considering and when an alternative might be a better fit.
You may want to consider MPI if:
- You have trouble qualifying for term life insurance due to a pre-existing condition
- You want coverage specifically to pay off your mortgage if you die
- You don't want a policy that requires a medical exam
- Your dependents would struggle to pay off your mortgage if you die
You might not want to consider MPI if:
- You want payout flexibility for your beneficiaries (for use on mortgage, bills, burial costs)
- You want fixed coverage, instead of one that decreases over time
- You want a more cost-effective option, like term life insurance
How can I use term life insurance to cover my mortgage?
You can use term life insurance to help pay off your mortgage if you pass away during the policy's term. With term life insurance, the death benefit is typically not taxable and can support your loved ones financially. Your chosen beneficiaries (like a spouse or children) may use the payout to cover expenses like:
- Mortgage or rent
- Medical or credit card bills
- Student loans
- Education expenses
- Savings
- Funeral or burial costs
If you want your term life insurance policy to cover your mortgage, consider selecting a term length that aligns with your mortgage term — like 10, 15, 20, or 30 years. You may also want to select a coverage amount that is large enough to pay off your home loan, as well as other expenses your family might be responsible for upon your death.
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