As per the 2023 mortgage protection insurance(MPI) rates, a 30-year insurance costs around $15 monthly. MPI ensures zero mortgage balance if the borrower dies, loses their job, or is critically ill.
The mortgage balance in the United States has risen to $12.01 trillion in 2023. This is because many homebuyers either lost their jobs or expired during the pandemic.
It is hard to pay off the mortgage balance if any untoward event occurs in a buyer’s life, which makes mortgage insurance essential. MPI helps the borrower’s family to pay off the mortgage.
BENEFITS OF MORTGAGE PROTECTION INSURANCE
- An MPI policy will pay off your mortgage balance if any unexpected event occurs.
- MPI provides coverage for a specific duration, usually 5-30 years.
- The Further Consolidated Appropriations Act of 2020 allows tax deductions on MPI.
- No medical exams are required to qualify for an MPI policy.
What Is Mortgage Protection Insurance?
MPI is an insurance policy in which the beneficiary is the mortgage lender. MPI is drafted to help the family of the borrower to get rid of the mortgage debt.
Moreover, MPI provides financial security and peace of mind to the insured. It ensures the borrower, that in case of an untoward life event, their family can stay in the home without paying for the mortgage.
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Mortgage Protection Insurance vs. Term Life Insurance
The beneficiary in mortgage protection insurance is the lender, whereas, in a term life insurance policy the beneficiary is the family of the insured. Here are the key differences between the two:
| Mortgage Protection Insurance | Term Life Insurance | |
| Purpose | MPI is designed to cover the mortgage balance. | Term life insurance provides coverage for a broader range of financial needs. |
| Duration | MPI is typically purchased for a specific term that matches the mortgage duration. | Term life insurance provides coverage for the policyholder’s life. |
| Premiums | MPI premiums are fixed and are higher compared to life insurance. | Term life insurance premiums can vary based on age, health, and coverage duration. |
How Does Mortgage Protection Insurance Work?
Here’s how an MPI works:
- Policy Selection: Homeowners select an insurance policy that suits their needs. The policy provider specifies the amount and duration of the mortgage.
- Premium Schedule: Regular premium payments are set either monthly or annually. Premiums will vary based on your age, health, and coverage amount.
- Mortgage Balance Payoff: If an unfortunate event occurs, the insurance payout will clear the mortgage balance.
What Coverage Benefits Does an MPI Policy Provide?
An MPI policy provides 4 benefits:
- Unemployment Benefit: MPI covers the monthly mortgage payment if the policyholder loses their job.
- Disability Benefit: MPI will pay the mortgage balance if the insured becomes physically disabled.
- Critical Illness Benefit: An MPI policy will pay a lump sum amount to the policyholder if they are diagnosed with a critical disease.
- Death Benefit: The MPI company will pay off the mortgage balance to the lender if the homeowner dies.
Pros and Cons of Mortgage Protection Insurance
It’s important to review the terms, conditions, and costs of MPI to make an informed decision. Here are its pros and cons:
Pros ✅
- Financial Security: Mortgage Protection Insurance ensures that your mortgage will be paid off in an unforeseen event.
- Easy Process: MPI’s application process is straightforward, with minimal requirements.
Cons ❌
- Costly Premiums: Premiums for MPI are higher in comparison to other policies.
- Lack of Flexibility: Unlike life insurance, MPI covers only mortgages and doesn’t address other financial priorities.
Which Is the Best MPI Company in the U.S.?
Here are the top 4 MPI companies of 2024:
- American International Group (AIG): The company offers reasonable rates for high-priced mortgages, for example, $300,000 or more.
- Haven Life: They offer a quick online application approval.
- State Farm: They offer multiple discounts on insurance premiums based on the duration of the mortgage.
- Transamerica: They offer Trendsetter ROP (return of premium) 30, a special term life insurance policy. If you are a first-time homebuyer this policy can be an ideal option for you.
Is MPI Worth it?
Yes, it is! MPI provides a homeowner and their family with financial security. Buy an MPI policy and make sure your loved ones can stay in the home they love.
Also, if you are a new homebuyer, you must compare the rates of different insurance providers to make an informed decision.
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Frequently Asked Questions
Is mortgage protection insurance mandatory?
No, mortgage protection insurance is not mandatory. However, it offers financial security to your family in case of an unforeseen event.
Can I cancel my mortgage insurance?
Yes, you can cancel your mortgage insurance. Though the process may vary based on the specific policy and lender.
What is the difference between mortgage protection insurance and private mortgage insurance?
Mortgage protection insurance covers the mortgage balance in case of death, disability, or critical illness. On the other hand, private mortgage insurance protects the lender if the borrower defaults on the loan.
Does mortgage protection insurance require medical exam?
No, you don't need a medical exam to qualify for MPI.
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