Do you need mortgage protection insurance?
- MPI is typically issued on a guaranteed acceptance basis.
- One drawback is that MPI is a declining-benefit policy.
- Don't sign up through your mortgage company without shopping around.
Odds are if you're paying a mortgage, you've received offers for mortgage protection insurance. It comes in several forms, but it typically covers your mortgage if you lose your job or become disabled, or it pays off your mortgage when you die.
Would you benefit from mortgage protection insurance? Or is it just another way for your mortgage company to siphon extra money out of your wallet each month while protecting itself upon your death?
The answer depends on your health, financial situation and what you want to happen when you die. Here are the pros and cons of mortgage protection insurance, along with tips for getting the best policy at the right price.
What is mortgage protection insurance?Mortgage protection insurance, or MPI, is also called mortgage payment protection insurance, or MPPI. It's simply life insurance that pays your mortgage if a certain event, such as death, disability or job loss occurs, explains Kevin M. Lynch, an assistant professor of insurance at The American College in Bryn Mawr, Pa. The cost depends on factors such as the amount of your mortgage and your age and health. For disability MPI, costs also vary depending on your occupation.
Many people confuse MPI with private mortgage insurance, or PMI. "You're required by law to get PMI if you put less than 20 percent down to purchase your home," says Christopher Ketcham, senior director of knowledge resources at the Insurance Institute of America in Malvern, Pa. "It has nothing to do with disability, job loss, or death. It pays the bank if you're foreclosed on."
If you purchase mortgage protection insurance that pays off your mortgage when you die, the insurance company will send a check directly to your mortgage company, leaving your heirs with a home unencumbered by a mortgage. Payments will also go directly to your mortgage company if your policy pays upon disability or job loss, but only for a certain period, typically a year or two, and there may be a waiting period before payments kick in, says Ketcham. Disability or job-loss policies pay only the principal and interest on your mortgage. But you may be able to get a rider to cover other mortgage-related expenses like homeowners association fees.
The benefits of mortgage protection insuranceOne benefit of MPI is that it's typically issued on a "guaranteed acceptance" basis. "If you fill out the application, few questions will be asked to keep you from getting coverage," says Lynch. "That's valuable for people who are uninsurable or insurable at a high rate because of health issues." It's also valuable for people who work in high-risk occupations, such as roofers, who usually can't get disability insurance.