Mortgage Protection Insurance: Is It Worth It and Do You Need It?

Are you pressured by the lender to sign up for mortgage protection insurance? If yes, then put a stop to that and read this article to understand better if it’s worth it or not!

In general, you shouldn’t sign on any document without first doing some research on it, no matter what it’s about. 

Only sign documents when you are 100% sure of what they are for and how they will impact you, your family, and your financial goals.

Mortgage Protection Insurance, also known as mortgage life insurance, can be beneficial to the homeowners, but in some cases, it also has its drawbacks.

In this article, we’re going to go more in-depth about mortgage protection insurance and explain to you what it is and how it works. By the end, you should understand better what MPI (mortgage protection insurance) is, and if it’s worth it for you or not.

What Is Mortgage Protection Insurance?

Mortgage protection Insurance acts as the safety shield to your mortgage payments if something critical happens to you. It helps pay your monthly mortgage payoffs if something happens to you and you’re not able to continue with the payments, such as a serious illness or worse, death.

If you’re out of work due to an illness or injury for 30-60 days, during this extended period, the mortgage insurance policy will pay the mortgage for you and might even help you cover some of your bills.

Your policy might pay you even 125% of your monthly mortgage rate. However, you can only claim these payments for up to 6 months or a year, depending on your policy’s conditions.

If you make claims on this insurance they will be received directly by you and not by your lender.

But before you go ahead and sign up for it, check out how mortgage protection insurance works.

How Mortgage Protection Insurance Works?

You can usually buy mortgage life insurance when you buy a home, or after a short period, since you made the purchase.

The MPI length will depend upon the duration that it takes to pay off the loan for the house.

Generally, the mortgage lenders will try and sell you mortgage protection insurance through the companies that are associated with them.

But that’s not the only way to get MPI.

You can also purchase MPI through many other insurance companies after you’re done signing up for the mortgage and you have updated your information in the public records.

If you purchase the mortgage protection insurance from your lender, then they will receive all the payments directly in case something happens to you as a way to pay off the loan.

But if you choose to buy the policy from other insurance companies that are not related to your lender, you can make claims on it to pay the mortgage, and everything that’s left will be yours.

In the unfortunate event that something bad happens to you, the payments will be received by your spouse or any other person you choose.

When Do You Need To Buy Mortgage Protection Insurance?

Down below, I have mentioned two primary causes where it makes sense to buy MPI:

If You Have A Spouse:

Take a look at your household finances, and figure out if you or your partner can pay off the loan if something unexpected happens to you.

If you suddenly get ill or worse, your spouse will need to continue with paying off the mortgage every month otherwise they might lose the house.

So if your partner won’t be able to continue with the payments, then it would make perfect sense to buy mortgage protection insurance.

If You Are A Parent:

If you are a parent I’m sure you want all that is best for your child’s future but let’s start off with the basics: providing shelter.

So again, you need to make sure that you have a backup system in place if you are unable to pay off the mortgage anymore. You want to make sure that your kids will have a home to stay and grow in.

The mortgage insurance policy will help pay off the mortgage payments and then your children could still live in the house even after you’re gone.

Factors To Consider When Buying MPI:

Where you buy it from:

When you’re looking to sign up on a loan, the lender will usually be the first one to offer you the option to buy MPI through them.

If the offer is reasonable and it makes sense to you, then you could go for it, but only after you’ve done enough research into it, and read the contract carefully.

Another option is to go with an insurance broker or comparison website that will help you better decide what company to get your insurance from, what are they offering, and at what costs.

Claiming Premiums:

If you will suffer from a severe illness, a disability, or even in the events of death, and you or your partner won’t be able to afford to pay your mortgage, MPI will help you with that.

But in order to make claims for the payments, you will have to meet some requirements for example being ill for a certain amount of time like 13 or 26 weeks.

So make sure to check the policy and take into account the number of weeks and other conditions that are required in order to make a claim for paying off the mortgage.

Cover Of Policy:

If you’re single, then buying a policy that only covers you makes perfect sense, however, if you have a spouse then you should get a dual or joint policy.

This will make sure that both of you are covered and the MPI will repay the mortgage if something were to happen to any of you.

Decide what cover is best suited for your needs and buy it accordingly.

Reasons To Avoid Mortgage Protection Insurance:

Payout Goes To Lender:

In case of death, the lender will be the one who will get paid directly for the mortgage and not your family.

So your family will get the house paid off but that’s about it, they will not receive any other payments or help after that.

Expensive Premiums:

Initially, when you start paying off the mortgage you won’t find MPI as expensive. But when it keeps going on for years, (the duration of your loan), then you will realize that you are paying more money for less value.

Since the value of your policy will gradually decrease as you continue to pay off the mortgage, it won’t make sense to pay for MPI after a certain period of time.

Unfixed Payouts:

The mortgage life insurance payment is not exactly a fixed plan, since the insurance value is based on the decreasing term policy.

So when you keep on going with monthly payments to repay your loan, then the worth of your policy also decreases, hence the unfixed payouts.

Mortgage Protection Insurance, Final Words:

It makes more sense to buy an MPI if you’re living with your spouse or you have kids living with you. It’s good to know that in the event of an unexpected illness or sudden death, the mortgage will be covered.

But there are also some drawbacks to it, mainly that the payouts are not fixed, and that the value of the policy goes down as you pay off more of your loan.

A key thing to remember is to always do your research and not just get the first insurance that’s offered to you, try to shop around for some other offers first.

Hopefully, this article helped you out a bit by explaining what is MPI and how it works, so that you can make a more informed decision if it’s worth buying it or not.