Since 1994
By Gil G Edwards, RICP®, Founder & CEO, Termco · Licensed agent, NPN 676445 · Updated
For most families, the mortgage is the largest monthly bill. If you died, would the people who count on you be able to stay in the home? That question is what "mortgage protection" marketing is built on. It's a fair question. The answer just isn't always a special mortgage product.
First: three things people confuse
- Private mortgage insurance (PMI) or FHA mortgage insurance protects the lender, not your family. You may be required to pay it with a small down payment. It pays nothing to your family if you die. (See the CFPB's explanation in the sources.)
- Mortgage protection insurance (MPI) is a life insurance policy marketed to homeowners. Older-style policies are often decreasing term coverage that shrinks along with your loan balance, and some pay the lender directly. Many policies sold as "mortgage protection" today are actually level term or other life policies with riders, so read what you're being offered.
- Term life insurance pays a fixed death benefit to the beneficiaries you choose, who can use it for the mortgage or anything else.
Side-by-side comparison
| Traditional mortgage protection (decreasing term) | Level term life | |
|---|---|---|
| Who gets paid | Sometimes the lender; sometimes your beneficiary | Your chosen beneficiaries |
| Death benefit | Typically declines as the loan is paid down | Stays the same for the whole term |
| Premium | Often level, even as the benefit shrinks | Level for the term |
| How the money can be used | Often limited to the mortgage | Any purpose: mortgage, income, childcare, college |
| Underwriting | Often simplified; may cost more per dollar of coverage | Fully underwritten or accelerated; healthy applicants may get better prices |
| If you move or refinance | May not follow you to a new loan | Stays in force regardless of your loan |
Product features vary by insurer and state. Always review the actual policy.
Why many families choose level term instead
A level term policy sized to your mortgage plus other needs often gives your family more flexibility. Your spouse might decide to keep the house and use some of the money for childcare, or to sell and move closer to family. With term life, that choice belongs to your family, not your lender. And if you're in good health, fully underwritten term coverage is frequently less expensive per dollar of coverage than simplified-issue mortgage protection products.
When mortgage protection-style coverage can make sense
- Health issues that make traditional underwriting hard. Simplified-issue mortgage protection products may ask fewer health questions. The coverage may cost more, but it may be easier to get.
- You want living benefits. Some policies marketed as mortgage protection include riders that can pay part of the benefit for a terminal, chronic or critical illness. Many term policies offer similar riders, so compare.
- You prefer simplicity. Some people like a policy tied to one goal. Just make sure you understand who the beneficiary is and how the benefit changes.
How much coverage and for how long?
A simple starting point:
- Amount: your remaining mortgage balance, plus several years of income your family relies on, plus debts and goals such as college, minus existing coverage and savings.
- Term: at least the years left on your mortgage, or until your youngest child is independent, whichever is longer.
Some families "ladder" two policies, for example a 30-year policy for the mortgage years and a 20-year policy for the years the kids are home, so coverage steps down as needs do.
A simple illustration
A 38-year-old parent with a $350,000, 30-year mortgage and two young children might compare a decreasing-term mortgage policy starting at $350,000 with a level 30-year term policy for $750,000 that covers the mortgage and replaces several years of income. Depending on health, the level term policy could cost more or less than the mortgage product, but it would pay a larger, fixed benefit to the family. This is a simplified illustration, not a quote.
Common sales tactics to watch for
Homeowners often receive mail that looks official after closing on a home, because mortgage records are public. Some of it comes from legitimate agents, and some is designed to look like it came from your lender. A few things to keep in mind:
- Your lender does not require mortgage protection life insurance. If a mailer suggests it's mandatory, read carefully.
- Ask for the insurance company's name and the agent's license number, and verify it with your state insurance department or NIPR.
- Don't replace an existing policy without comparing what you'd give up, such as a lower age-based price or a contestability period that has already passed.
- Most states give you a "free look" period after a policy is delivered to review and cancel for a refund. The length varies by state and product.
Two working parents? Cover both
Mortgage protection is often pitched to the primary earner, but if your household needs both incomes to afford the home, each parent's death would put the house at risk. Many families buy a policy on each parent. A stay-at-home parent's coverage matters too, because replacing childcare and household work costs real money.
Questions to ask before you buy anything labeled "mortgage protection"
- Is this decreasing or level coverage?
- Who is the beneficiary: my family or my lender?
- Is it fully underwritten, simplified or guaranteed issue, and what does that do to the price?
- What riders are included, and do they cost extra?
- What happens if I refinance, move or pay the loan off early?
Illustrative only. Any rate or health-class example on this page is a simplified illustration, not a quote, offer or guarantee. Actual rates and approval depend on each insurer's underwriting of your full application.
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Frequently asked questions
Is mortgage protection insurance the same as PMI?
No. PMI and FHA mortgage insurance protect the lender if you stop paying your loan. They do not pay your family if you die. Mortgage protection insurance is a type of life insurance.
Is mortgage protection insurance worth it?
It can be for some people, especially those who have trouble qualifying for traditional term life. Many healthy applicants find a level term policy offers more flexibility and value. Compare both.
Can I use regular term life insurance to pay off my mortgage?
Yes. Your beneficiaries receive the death benefit and can use it to pay the mortgage, or for any other need.
Should my term length match my mortgage?
It is a common starting point. Many people choose a term at least as long as the years left on the mortgage, or until their children are independent.
Does mortgage protection insurance require a medical exam?
Many mortgage protection products use simplified underwriting without an exam, but approval may still depend on your health answers. Terms vary by insurer.
Sources
- CFPB – What is mortgage insurance and how does it work?
- NAIC – Life insurance consumer resources
- CFPB – What is private mortgage insurance?
- NIPR – Look up an agent's license
This page is general information, not medical, legal or underwriting advice. Underwriting decisions are made by each insurer and vary by carrier and individual. Talk with your doctor about your health and treatment.