PMI or mortgage protection insurance?

Dear Dr. Don,
I have a question. I understood when we bought our home that we had mortgage insurance that would pay off the house loan if either my spouse or I died. Now the banker tells me that we no longer have this insurance. Is there someplace that we could have this type of coverage? Is he talking about the PMI?

I am confused as I thought we were covered in case of something happening to one of us. We are in our late 50s, early 60s and don't know how to protect ourselves with this matter.
-- Clara Conundrum

Dear Clara,
Private mortgage insurance, or PMI, doesn't protect you. It protects the lender if you don't make your mortgage payments. First-mortgage lenders typically require PMI if the loan-to-value of the first mortgage is greater than 80 percent of the appraised value of the property.

The Homeowners Equity Protection Act of 1998 stipulates when lenders must cancel PMI and how homeowners can request lenders to cancel PMI prior to when the lender is required to cancel the insurance. A PMI policy in force at closing would eventually be canceled.

Mortgage life insurance, or mortgage protection insurance, is a different product. It is structured to pay off the mortgage with life-insurance proceeds on the death of one or both of the insured homeowners. There are different ways to structure the product, but, in general, if an insured dies, life insurance proceeds from the policy are sufficient to pay off the mortgage. Insurance agents often recommend a term-life policy as a better alternative to mortgage life insurance.

It's a common mistake to confuse mortgage protection insurance with PMI. If you had a mortgage protection insurance policy in force at closing, those closing documents should include the policy information, including the issuing company. Wondering how a mortgage protection policy would have lapsed without your knowledge or action is another reason why it's likely that you are confusing the two different policies. Talk to your banker again and ask if he was referring to a PMI policy or mortgage protection policy when he told you that you no longer have this insurance.

If you don't have adequate insurance coverage, and you are able to qualify for life insurance, then it's a simple matter to find a term-life policy to meet your needs. Web sites such as Insure.com can give you an idea of what you'll pay for a policy. A Bankrate feature, Just the facts on life insurance, has more on choosing an insurance policy, as does the Bankrate Insurance Guide.