Mortgage Protection Insurance vs. Life Insurance vs. Private Mortgage Insurance, or PMI: Which one do I need?

Insurance is a necessary part of life. 

Everyone needs insurance to protect themselves from financial ruin in case of an unfortunate event. 

There are a variety of different types of insurance, each with its benefits and drawbacks.

In this article, we will compare mortgage protection insurance, life insurance, and private mortgage insurance, how they can help protect you and your family and which one you need exactly.

Keep reading!

Mortgage Insurance Vs Homeowners Insurance

Mortgage insurance is often confused with homeowners insurance. However, they serve different purposes. 

Homeowners insurance protects you in case your property is damaged, while mortgage insurance helps secure a mortgage with a lower down payment.

What does Mortgage Protection Insurance do?

Mortgage protection insurance is a type of insurance that helps protect homeowners from losing their homes in the event of a foreclosure. 

The policy typically pays off the mortgage balance, ensures that the home remains in the borrower’s name, and covers any costs associated with a foreclosure, such as attorney fees, court costs, and lost equity.

It can also protect you if you lose your job and can’t afford to pay your monthly mortgage. 

This type of insurance is important because it can help keep you in your home if things go wrong.

How Can It Help Me Payoff Or Reduce My Mortgage Debt?

Mortgage protection insurance can help pay off mortgage debt in the event of an unexpected death or total disability of the borrower. 

So it can be a valuable option for people who are struggling to pay off their mortgage debt and protect borrowers from defaulting on their loans and can provide relief in the event of financial hardship.

This type of insurance is available through a variety of lenders and is not correlated with a particular mortgage product.

Yes, the cost of this coverage can be substantial, but it may be worth it if the borrower is facing a difficult financial situation.

What Type Of Insurance Is Mortgage Protection Insurance? 

Mortgage protection insurance (MPI) is a type of decreasing term life insurance that pays out a benefit to a lender and is used solely to pay off a mortgage balance.

Some companies call it mortgage life insurance because most policies only payout when the policyholder dies.

Who Are The Beneficiaries Of The Policy?

Mortgage protection insurance beneficiaries are the people who receive the benefits of a life insurance policy that is taken out to protect a mortgage. 

The policy will pay off the mortgage if the policyholder dies. The beneficiaries are typically not your family but your mortgage company.

This means that your family can’t depend on your insurance to cover other bills. And the policy can’t be used to fund things like funeral expenses and property taxes.

Do You Have to Have Mortgage Protection Insurance? 

Mortgage protection insurance is an optional step when you’re in the process of buying a home. isn’t a mortgage requirement.

It’s completely up to you whether you decide to go with this policy or not.

But still, mortgage protection insurance can offer peace of mind for homeowners if their home is lost or damaged in a covered incident. 

This type of coverage typically costs a small premium and can protect against losses up to a certain limit.

If you don’t intend to pass on the mortgage for your home to your family but you also can’t get an affordable term life insurance due to an underlying condition, mortgage protection insurance might be a better option for you. 

But, if you are in good health, you are probably going to get much better value with term life insurance. In addition, unlike mortgage protection insurance, it can cover multiple financial needs.

How Long Do I Have To Have Mortgage Protection Insurance?

Mortgage Protection Insurance (MPI) is a policy offered by the lender to protect borrowers if their home is sold short or goes into foreclosure. 

The policy typically lasts for up to 20 years, although there are some exceptions. If you have MPI, make sure to keep your policy in good standing by annually renewing it.

And, as long as you didn’t cancel the mortgage protection plan, you’ll continue to make monthly premium payments to your insurance company for the duration of the policy term.

Where Can I Purchase Mortgage Protection Insurance? 

• Private Insurance Company

Some private insurance companies specialize in mortgage protection insurance policies. The companies you will work with may vary according to your state.

• Life Insurance Provider

There are other companies besides life insurance companies that offer MPI. If you have another kind of insurance with an insurance carrier, you might be in a position to bundle your insurance and benefit from reduced costs.

• Mortgage Lender

When you close on your loan, You can simply ask a representative or a real estate agent for a referral to a company that supplies an MPI policy if your lending provider does not offer MPIse kind of policies.

Is Mortgage Protection Insurance Very Expensive? 

As a rule of thumb, you can expect to pay a minimum of $50 a month for an MPI policy.

But, this greatly depends on many factors just like any typical traditional life insurance policy. 

Things like: age job, and risk will be all taken into consideration when valuing your mortgage protection insurance cost.

What Is Private Mortgage Insurance?

Private mortgage insurance is a policy that provides insurance for the lender of a mortgage, if the borrower defaults on the loan. 

The policy typically costs between 1 and 2 percent of the value of the loan and pays out if the borrower is unable to make payments on the mortgage or if the property is sold for less than the balance of the loan.

How Do I Pay For PMI?

There are several different ways to pay for PMI. Some lenders may offer more than one option, while other lenders do not. Before agreeing to a mortgage, ask lenders what choices they offer.

 The most common way to pay for PMI is a monthly premium.

PMI premiums typically range from 0.25% to 0.75% of the balance of the mortgage and are paid monthly or annually. 

If homeowner defaults on their mortgage, the lender may cancel the loan and sell the home at the auction unless the homeowner has PMI insurance in place.

The Difference Between Private Mortgage Insurance (PMI) and Mortgage Protection Insurance (MPI)

Private mortgage insurance (PMI) is a type of mortgage insurance that is provided by a private company. 

This insurance protects the lender if the borrower defaults on the loan. 

It is different from government-backed mortgage insurance, such as FHA insurance and VA insurance.

Mortgage protection insurance (MPI) is a type of insurance that provides coverage for the borrower if he or she loses their job or becomes ill. 

This insurance can help to protect the borrower’s mortgage payments. And it is usually offered by the lender as a way to protect their investment in the loan.

While MPI is typically optional, PMI is not. Think of it this way: MPI helps cover your family if you’re unable to work and pay off your loan. 

On the other hand, PMI covers your lender’s loss if you default on your loan.

What Is Life Insurance?

Life insurance is a financial product that provides a specified lump sum payment to the beneficiary upon the death of the policyholder. 

The policyholder pays a regular premium to the insurer in exchange for this benefit.

Types of Life Insurance

Many different kinds of life insurance are available to meet all kinds of desires and needs.

On the short-term or long-term needs of the insured, it’s critical to decide on whether to opt for temporary or permanent life insurance.

Term life insurance

Term life insurance lasts for a certain number of years, then expires. You choose the term when you purchase the policy.

Common terms are 10, 20, or 30 years. The best term life insurance policies balance cost with long-term financial strength.

Term life insurance has mainly 3 types:

Decreasing Term Life Insurance:

Where the coverage decreases over the life of the policy at a predetermined rate.

Convertible Term Life Insurance: 

It allows policyholders to convert a term policy to permanent insurance.

Renewable Term Life Insurance: 

It provides a quote for the year the policy is purchased.

Permanent Life Insurance

The life insurance rate keeps on being present for the insured whole lifetime unless the individual cancels the insurance or surrenders the policy.

Typically, it’s more expensive than term life insurance.

Permanent life insurance has mainly 5 types:

Whole Life Insurance: 

It accumulates cash value allowing the policyholder to use it for many purposes, such as a source of loans, cash or to pay policy premiums.

Universal Life Insurance: 

It accumulates cash value that earns interest, universal life features flexible premiums and premiums can be adjusted over time.

Indexed Universal Insurance: 

It lets the policyholder earn a fixed or equity-indexed rate of return on the cash value component.

Variable Universal Insurance: 

It allows the policyholder to invest the policy’s cash value in an available separate account.

Burial Or Final Expense Insurance: 

It has a small death benefit. Despite the names, beneficiaries can use the death benefit as they wish.

Term vs. Permanent Life Insurance

Term life insurance is a type of insurance that provides coverage for a set period, usually three years.

This type of life insurance is typically cheaper than permanent life insurance because the premiums are paid each year rather than permanently.

However, term life insurance can be less reliable if the policyholder experiences a major life event, such as a death or divorce, before the policy expires.

Permanent life insurance, on the other hand, provides coverage for the lifetime of the policyholder and typically costs more than term life insurance but is more reliable in the event of a major life event.

Mortgage Protection Insurance Vs Term Life Insurance

Term life insurance is a type of insurance that pays out a death benefit if you die before the policy expires.

This type of insurance is typically used to protect your estate or to provide financial stability in case of an unexpected death.

Mortgage protection insurance, on the other hand, can help you avoid foreclosure.  

Mortgage protection insurance typically costs a minimum of $50.

It covers the cost of a mortgage payment if you can’t make one due to health reasons, unemployment, or other reasons. The coverage usually lasts for up to 12 months.  

Term life insurance provides different types of benefits, but they all have one thing in common: they payout when you die.

These benefits can include money for your estate, money for your children’s education, and money for burial expenses.

Final conclusion: MPI vs. Life Insurance vs. PMI: Which one do I need?

First, let’s take PMI out of the equation because private mortgage insurance is often required by lenders from borrowers who wish to make less than a 20% down payment. 

Since it’s a form of mortgage insurance that protects the lender in case you the borrower stop making payments on your loan.

Now the final decision falls between traditional life insurance and MPI.

Now if you’re employed at a high-risk job or if you’re a young person having difficulty getting approved for a life insurance policy, MPI would be a great choice to provide you and your loved ones with peace of mind.

However, if you feel as though your family would benefit more from being able to use money from a posthumous insurance payout for things other than your mortgage – like bills, taxes, or funeral cost, it might make more sense to pursue a traditional life insurance policy rather than MPI.

In conclusion, life insurance and mortgage insurance are both important pieces of protection for homeowners.

Life insurance can help protect your loved ones in the event of your death, while mortgage insurance can help protect your home in the event of a default.

It is important to review your coverage needs and make sure you have the appropriate protection in place.