For most people, closing on a home equity line or mortgage is their largest investment.
Monthly mortgage payments are often the biggest expense. As a breadwinner, being unable to work due to disability or illness greatly impacts your family’s finances. To avoid losing your home, you’re required to keep up the payments.
A mortgage protection insurance will ensure your family is taken care of by allowing them to keep the house and have the mortgage paid off.
Mortgage protection insurance (MPI) is a type of insurance policy that pays off your mortgage in the event of death, illness, or disability.
There are two options to protect you and your family. You can apply for protection insurance to take care of the mortgage payments or go for general income protection insurance.
The main aim of the mortgage protection policy is to make sure you can still pay off your mortgage if you are unable to work or no longer have a secure source of income. In situations where you become ill or disabled, this insurance will make your mortgage payments until you can go back to work or until the payment period ends.
If your death occurs within the term of the policy, your beneficiaries get a death benefit. The insurance provider pays your lender the remaining balance.
The monthly payment costs vary based on the mortgage amount, your health, and your age.
Mortgage protection insurance policies generally cover only the principal amount plus interest. The other additional fees, such as property taxes, homeowners insurance, and HOA payments, are up to you. To cover the extra payments, you can include a policy rider.
Purchasing mortgage protection insurance is not mandatory, so this decision is entirely up to you. MPI policies are most beneficial if you fail to qualify for term life insurance due to age or health conditions. Before signing up, request several quotes from insurance providers and compare their financial strengths.
To avoid policies with declining payouts, you can opt out of those with medical-exam terms, level death benefits, and level premiums. You may incur a higher cost, but your beneficiaries get the same benefits regardless of when your death occurs.
If you’re still in the initial stages of mortgage payments, you can select a policy with broader coverage at a lower price. After paying off a significant principal amount, you should consider transitioning into a policy with a guaranteed issue term.
Most people opt for a term life insurance policy. Besides the affordability, these policies offer more protection and are more flexible. Since your home is a crucial investment, it’s essential to protect it. Instead of getting an MPI, you can go for a homeowners insurance policy. As you continue with your mortgage payments, your home and any property attached to it get protection.
If your financial stability is rocky or your life insurance coverage doesn’t facilitate mortgage or loan payments in case of death, you should consider MPI. People who can’t get life insurance because of a health condition should look into MPI if they have a mortgage, as it is often easier to acquire than other life insurance policies.
However, if your life insurance policy is adequate to pay off your loan, cover your expenses, and substitute your income for a certain period, you may not need MPI.