Insurance that pays off mortgage if you die

What Is Mortgage Protection Life Insurance?

Life insurance offers financial protection to your family by providing a cash payout if you were to pass away. In many cases, that money would go directly to your family to help them cover day-to-day expenses, pay leftover debts, or manage end-of-life costs.

Mortgage protection insurance (MPI) is similar to life insurance, with one major difference: Your mortgage company or lender receives the payout instead of your family. The lender then uses that payout to cover the balance of the mortgage on your home.

Mortgage death insurance can help you realize your dream of owning a home and protect your family from debt if the worst happens. Some lenders require this type of insurance so they have a fallback if you die while you’re still paying off your mortgage.

How Does Mortgage Protection Life Insurance Work?

Also called mortgage death insurance, this type of insurance works in a similar way to decreasing term life insurance. The coverage amount and length typically match the terms of your mortgage, with term lengths ranging up to 30 years.

As you make mortgage payments, your death benefit gradually decreases over time. For example, if you start with a $150,000 mortgage with a 20-year term, your mortgage protection insurance payout might decrease by 5% a year until it is gone at the end of the term. If you die during that time, any payout would go directly to the bank to cover the rest of your mortgage.

In some cases, the term length may be limited by your age. When you’re shopping for a life insurance quote, be sure to ask a professional about your options.

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Pros and Cons of Mortgage Protection Life Insurance

Pros:

• Secures your mortgage by providing protection that your bank may require
• Simple approval with limited underwriting, in many cases
• Protects your family from debt by ensuring the bank gets paid if you die

Cons:

• Lack of flexibility, since the payout goes to your bank instead of your family
• Often more expensive than other term life insurance policies because of limited underwriting
• Doesn’t cover your family’s financial needs beyond your mortgage

You’ve Got Mortgage Life Insurance Questions. We’ve Got Answers.

• Is mortgage protection insurance a good idea?

  It depends. Most people buy mortgage protection because it’s required by their lender. Because the payout goes straight to your lender, mortgage life insurance isn’t as flexible or protective as regular life insurance. If you want your family to have full coverage and access to your death benefit, talk to your life insurance company about a traditional term life or permanent life insurance policy instead.

• What happens if I pay off my mortgage while my mortgage protection insurance is still active?

  If you pay off the mortgage while the policy is active, you may be able to convert your mortgage insurance into a life insurance policy. You could also simply stop payments and cancel the mortgage protection insurance. Also, keep in mind that some mortgage protection insurance (MPI) policies will return your annual or monthly premium payments if you pay off your mortgage without a single claim.

• What’s the difference between mortgage protection insurance and private mortgage insurance?

  Private mortgage insurance (PMI) helps protect mortgage lenders when borrowers make a down payment of 20% or less. This policy adds premium payments to your regular mortgage balance, and the payout helps cover your lender if you default on the loan. Unlike MPI, your family still has to make payments on your mortgage if you die. If they default on the loan, the private mortgage insurance payout will kick in, but not before.

• What are some alternatives to mortgage protection life insurance?

  Not sure MPI is right for you? Here are a few alternatives:

  • Decreasing term: The coverage amount or death benefit declines over time, but your family can spend it the way they need to.
  • Level term: Don’t want your mortgage life coverage to decrease with your mortgage amount? Level term offers affordable, steady protection.
  • Permanent insurance: It’s more expensive than term life, but a great option for families who need lifelong coverage.

Life Insurance Quotes Through eFinancial

We’re committed to helping individuals, couples, and families protect themselves and their loved ones financially. With eFinancial, you’ll have access to high-quality, affordable life insurance options from more than 20 leading insurance providers. Our team of licensed agents will guide you through the process so you can get covered as quickly as possible.