Mortgage protection insurance or MPI protects your house when you die. This can be beneficial to you if you have a massive existing loan to a debtor. In other words, your home is not yet fully paid for, and you want to protect your loved ones from the burden of paying the monthly dues in case of unexpected death.
The premise is appealing and simple to many homeowners. When you die, the family’s security won’t be compromised, they can keep the house, and the mortgage is already paid off. These cases are already covered by term life insurance policies for many people, and they are already fine with paying a single premium each month.
Some of the factors that can affect your premiums include your age, gender, zip code, length of the policy, total coverage amount, and overall health condition. You can get a quote from the link provided and see if you can supplement a package to your existing insurance. Some people wanted to leave some amount of inheritance to the family instead of burdening them with debts when they die, which can be reason enough to get insurance.
How MPI Works
As the name implies, a mortgage protection insurance policy will pay off the balance of your existing debt in your home when you die. This is often available through several pre-need companies, banks, or mortgage lenders.
The reason why it’s available to many developers, creditors, or lenders is that they will be the ones who will be the beneficiaries when you’ve already passed on. The death benefit of general life insurance usually goes to the beneficiaries when the policyholder is gone. However, with this kind of policy, the check goes directly to the lenders to pay off the house loan’s remaining balance.
This can indirectly benefit the family. This can be especially helpful if the policyholder is the breadwinner and the children are relatively young. If you owe about $200,000 on your current house, the MPI will pay it off, and the family can sell the house or live there for years.
They may not have a say on how the benefits will be spent, but you can leave them an inheritance that is a home that can provide shelter for them for years to come. You won’t have to worry about them living on the streets because they have a home of their own.
Know that the amount of coverage will decrease over time. This is understandable as you’re also making payments towards your mortgage every month.
Is this Required for Homeowners?
MPI is not a requirement per se, but it can help. This is not the same as private mortgage insurance, where the lenders require them before you can get the house. This is because, in a PMI, the lenders will benefit in case the borrower defaults.
Some of the acronyms and terminologies can make the two more confusing to many. Know that MPI is a type of credit life assurance plan where you are not necessarily required to purchase. The check goes to the lenders and not to the beneficiaries if you will meet an untimely death.
Private mortgage insurance is an entirely different product. All in all, the lenders will require you to purchase this, and there’s a down payment of about 20% for the whole thing.
Do You Need This?
People who find that MPI is inflexible may choose the regular term policies that are more than enough to cover their mortgage when they meet an untimely demise. You can learn more about MPI on this site here: https://www.which.co.uk/money/mortgages-and-property/mortgages/what-is-mortgage-protection-insurance-a912h5h1z67y. In the event of death, the beneficiaries or remaining families may act out on options available to them.
- Others can use the check benefit to pay off the house, and the leftover will be kept for expenses
- There’s the possibility of entirely skipping the mortgage and using the cash available for their needs. Term insurance provides the family members money and not specifically the lenders.
In an MPI, there’s the locked obligation of paying for the house. The check goes straight to the creditors even if other pressing bills also need to be paid for. However, people are still getting these because of their convenience. The package is what they needed because it lines up with the mortgage balance. There’s no need for them to undergo a medical exam, and they can bypass the underwriting process in these kinds of policies.
The convenience extends to the consumers who were denied whole life insurance because of their old age or medical condition. This can be the last resort in protecting one’s property and family after death.
The coverage may also be added on top of a term life insurance policy. For example, if there’s a mortgage that has paid off in full, then there will still be plenty and more than enough money that the beneficiaries can use for their other expenses and bills.
Cons to Consider
Everything has its cons, and not all will give you the things that you need. While this option is a convenient one, it can have serious drawbacks and limited advantages. Some of them are the following:
Don’t Have Flexibility. While the death benefit will remove any financial problems that the family may have in terms of a mortgage, there may still be other debts that were left that they cannot pay. With a standard policy, the beneficiaries can use the payouts for other pressing payments, college tuitions, and more.
The decline of the Payout. There’s the possibility of a payout decline, especially if the death does not fall to a specific category included in the policy. There’s also the consideration that the premiums will stay the same even if the loan amount decreases over time. The premiums may also be higher than the amount you will pay with a term life insurance package.
While it’s true that term life insurance can provide you with more bang for the buck, considering your options is essential. If you can afford to supplement the two, it can be a better option for the family.