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Insurance

Mortgage Protection Insurance: When Is It Required?

By Stephanie Colestock MONEY RESEARCH COLLECTIVE

December 1, 2022

When you buy a home, you’re probably going to encounter some unfamiliar and potentially confusing acronyms such as PMI, MIP, and MPI. The last of these, MPI, stands for mortgage protection insurance, a type of optional coverage designed to protect you and your family if you are suddenly unable to make your home mortgage payments as scheduled.

Let’s have a look at what this coverage offers, how much it costs, how it differs from MIP and PMI policies, and when you should really consider buying a policy.

What is mortgage protection insurance?
Pros and cons of mortgage protection insurance
Is mortgage protection insurance necessary?
When is mortgage protection insurance required?
How much does mortgage protection insurance cost?
What are the best mortgage protection insurance companies?
Mortgage protection insurance FAQs

What is mortgage protection insurance?

Mortgage protection insurance, or MPI, is a form of optional insurance coverage that helps protect your home and your loved ones if you fall ill or pass away. This benefit is designed to step in and cover your remaining mortgage balance so your family or heirs aren’t left managing the monthly payments on your home.

MPI can feel similar to life insurance, in that the payout on this policy is only activated if you die or, in some cases, are permanently disabled, terminally ill, or seriously injured. It’s different from life insurance, though, as the benefit is limited to your mortgage balance. If you pass away shortly after buying the policy, the payout will be much larger than if you pass away toward the end of your policy term.

It’s pretty rare to find mortgage protection insurance policies as a standalone product these days. However, you may see them offered by mortgage lenders, or as an add-on rider to an existing life insurance policy for an additional premium.

MPI, PMI, and MIP: what’s the difference?

Mortgage protection insurance (MPI) can be easily confused with either private mortgage insurance (PMI) or mortgage insurance premium (MIP). However, while these three products each apply to a home mortgage, they are very different from one another.

What it is	What it does	Whether it’s required	Who it protects
Mortgage Protection Insurance (MPI)	Pays off your mortgage balance if you die or get sick	No	Your loved ones
Private Mortgage Insurance (PMI)	Protects your lender if you default on your mortgage balance	Sometimes	Your lender
Mortgage Insurance Premium (MIP)	Protects your lender if you default on your mortgage balance	Usually	Your lender (FHA)

Private mortgage insurance, or PMI, is usually required by conventional lenders if you take out a mortgage loan on a home with less than 20% equity. In most cases, this means you’ll need to pay PMI premiums if you put a down payment of less than 20% on the home. This insurance can be removed once the home reaches the 85% equity threshold or the halfway point of the loan’s amortization.

A mortgage insurance premium (MIP) is required on the majority of FHA-backed home mortgage loans, in lieu of PMI. Borrowers may be required to make an upfront MIP payment in addition to monthly payments, especially if they put less than 20% down on the home at the time of purchase.

Pros and cons of mortgage protection insurance

There are advantages and disadvantages to mortgage protection insurance. Here are a few things to consider before buying a policy.

Your loved ones won't be burdened with a monthly mortgage payment. If you were to pass away unexpectedly, get sick, or be seriously injured, your loved ones might be left juggling household expenses on their own… including a hefty mortgage payment. Depending on their financial situation, this could be unsustainable and could even force them out of their home. Rather than risk this sort of financial burden, MPI coverage can protect loved ones from that mortgage debt if you're suddenly gone.
Life insurance proceeds won't be tapped to pay your mortgage balance. Purchasing life insurance is a great way to protect your family and heirs from hardship if you pass away, helping to replace your income and provide for future financial needs. However, if you die with a large outstanding mortgage balance, your loved ones will need to allocate substantial funds toward that debt if they want to keep the home. MPI policies remove that obligation and leave life insurance proceeds untouched.
Coverage can often be added to an existing life insurance policy. If you're already planning to buy life insurance coverage, adding MPI can be both easy and cost-effective. Rather than shopping and applying for a completely separate policy and paying individual premiums for that coverage, you can often add MPI as a low-cost rider on an existing policy.

Finding a standalone policy can be difficult. These days, individual MPI policies are pretty rare. Instead, you'll most often find them offered by mortgage lenders or as a rider that can be added to an existing life insurance policy. If certain carriers don't offer MPI — or you weren't planning to purchase life insurance anyway — you may have trouble getting this coverage.
Coverage becomes less beneficial as your mortgage balance goes down. MPI policies can last decades, providing you with lasting financial protection for a set monthly premium. However, if you stay in the same home, your mortgage balance will continuously decrease over time, also decreasing the financial benefit of your MPI coverage that you're continuing to pay into.
You may be subject to added costs. Some insurance carriers impose additional costs related to MIP coverage, such as an added annual fee. You may or may find this added expense worthwhile.

Is mortgage protection insurance necessary?

Deciding whether to buy mortgage protection insurance really depends on your individual situation and goals.

If you already have a life insurance benefit that applies to your mortgage balance, this added coverage won’t hurt… but it isn’t necessarily needed, either. If you have a low mortgage balance remaining or significant savings on hand, you might not worry as much about a spouse or children who would be left with your remaining mortgage payments.

Instead, you might consider simply buying term life insurance coverage that’s earmarked for your home mortgage. You can even purchase a policy that lasts exactly as long as your home loan does (usually between 15 and 30 years). If you pass away in the first few years, your loved ones would be protected for the full mortgage balance. If you were to pass away toward the end of that term — when your mortgage loan is nearly paid off — your beneficiaries could simply use those funds for other purposes.

When is mortgage protection insurance required?

Unlike PMI or MIP, mortgage protection insurance is never mandatory. Lenders will not require this coverage, as it only benefits you (the borrower).

However, you may deem MPI necessary if your loved ones would be adversely affected by the remaining mortgage balance upon your death or severe illness. Some people would therefore deem his type of coverage to be “required” in order to protect their financial well-being.

How much does mortgage protection insurance cost?

Since mortgage protection insurance coverage isn’t often found as a standalone product, the cost can vary greatly. That’s because the premiums may be affected by:

the type of policy it’s being added to as a rider
how much coverage you need
how long you need the coverage for
what sort of discounts and bundles you qualify for by buying multiple coverages
where you’re located

Of course, that’s if you can even find this kind of coverage.

If you were to purchase a dedicated life insurance policy instead, intending for that benefit to cover your mortgage balance, you can expect to pay somewhere in the neighborhood of $34-55 per month, on average. Of course, your life insurance premiums will be dictated by the same factors mentioned above, as well the type of life insurance policy you choose and your:

Age
Gender
Medical history
Family history
Height and weight
Tobacco, alcohol, and drug use

For example, a 35-year-old Virginia woman in great health can purchase $500,000 worth of term coverage from State Farm for 30 years for about $50 per month. With Bestow, the same woman would pay about $47 for the same coverage.

What are the best mortgage protection insurance companies?

Finding mortgage protection insurance can be a challenge, especially if you’re looking to buy that type of coverage on its own. There are some carriers that offer these policies, like Family First Life National, but they are few and far between.

Instead, you may want to consider buying a term life policy with the intention of protecting your mortgage balance. This type of temporary policy is usually very affordable and can be purchased through many different life insurance companies.

For instance, let’s say you have $405,000 remaining on your mortgage loan with 19 more years of amortization to go. If you purchased a 20-year term life policy, your loved ones would be more than protected and would be able to pay off the entire mortgage balance — and might even have money left over — if you were to pass away suddenly.

State Farm – $34 per month – 20-year term coverage for $400,000
Allstate – $16 per month – 20-year term coverage for $400,000
Geico – $29 per month – 20-year term coverage for $400,000

Worst case scenario? You’re still alive at the end of your policy term, and now have a paid-off home that your loved ones can always afford to stay in.

You can also opt to purchase a second life insurance policy for other financial goals. You can ladder multiple term life policies or choose permanent life coverage to complement your mortgage’s dedicated term policy, and ensure that you always have peace of mind that your family is protected.

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Mortgage protection insurance FAQs

Is mortgage protection insurance worth it?

Purchasing mortgage protection insurance is almost always a good idea — whether that means buying an actual MPI policy, purchasing mortgage protection coverage as a rider on an existing policy, or buying a dedicated term life insurance policy. If your family, loved ones, or heirs would be financially disadvantaged by the sudden burden of your mortgage payments, this coverage is worth considering. It's especially important if you have a spouse and/or children who would like to stay in the home if you were to pass away, but it can also be beneficial if you simply want your home to pass on to your estate unencumbered by a mortgage loan.

How do you know if you have mortgage protection insurance?

Mortgage protection insurance can be purchased through select mortgage lenders, private carriers, or as a rider on an existing policy. In order to have this protection, you'll need to get a quote and elect coverage before paying monthly premiums.

What does mortgage protection insurance cover?

Mortgage protection insurance provides coverage to your mortgage lender if you pass away, fall seriously ill, or in some cases, are permanently disabled. Rather than allowing you to elect your own beneficiaries, this coverage pays your lender out directly for the remaining balance on your mortgage loan.

What's the difference between life Insurance and mortgage protection?

With mortgage protection insurance, your mortgage lender is the beneficiary of the policy. Your coverage stays in effect for a specific period of time (ideally, the remaining length of your mortgage loan) and covers your exact remaining loan amount — regardless of what that is.

Life insurance, on the other hand, offers a specific dollar amount of coverage for a defined period of time (term life) or for as long as you pay your premiums (permanent life). Life insurance benefits are paid out directly to your beneficiaries, who can use the proceeds to pay off the remaining balance of your mortgage or cover other expenses, such as credit cards or auto loans.

How can I get a free mortgage protection insurance quote?

To see how much MPI coverage will cost you, you'll likely need to work with an agent directly. If your mortgage lender offers this type of coverage, you can request a quote to see how much it will cost to add this protection to your loan. (You can also consider whether this coverage is available when choosing a mortgage lender for a new home purchase or while refinancing your mortgage loan.)

If you'd rather opt for term life insurance instead, many carriers offer online quotes that take just a few minutes to obtain.

Summary of our guide to mortgage protection insurance

Mortgage protection insurance isn’t as common as it used to be, especially if you’re looking for standalone coverage. While policies are still offered by select carriers, mortgage lenders, and mortgage refinance companies, you’ll most commonly find mortgage protection as a rider on a life insurance policy. Many homeowners opt for a dedicated term life policy instead, which is intended to pay off their mortgage balance if they pass away, since they are easier to obtain, offer flexible protection, and may be more affordable.

Stephanie Colestock

Stephanie Colestock is a DC-based personal finance writer with nearly 11 years of freelance writing experience. She covers a wide range of finance-related topics and is currently working toward her CFP®️ certification. Her work appears on sites such as Business Insider, MSN, Fox Business, CNET, Investopedia, and more.