Mortgage protection insurance essentially functions as a type of disability coverage for you and your family. The costs of the monthly payments or premiums can vary depending on the amount left on the principal loan, your overall health, and your age.
The policies may cover an interest portion and principal of the mortgage, but the insured is usually responsible for homeowners’ association payments and taxes. These are still responsibilities, but it’s possible to add riders in case you want these things to be covered when you die.
Some packages are designed to help loved ones live peacefully in the home. The total amount will be paid, which can be a massive relief for the remaining spouse who needs to work to provide for the children’s needs. The mortgage payments will be borne in total, and no one will worry about living on the streets if the beneficiary meets an untimely demise. The lenders will receive the total amount in the home, and your heirs won’t have to worry about anything.
Most of the policies are existent to reduce or cover your monthly payments. They can be helpful in case of a severe disability or if you ever lose your job in a certain circumstance. The terms will vary, and each individual may receive something that’s tailored to their needs.
For example, the MPI from the Bank of Montreal covers 50% to 100% of the payments for two years. For job losses, the amount covered is still 50% to 100%, and this is valid for six months. Most of these have a waiting period of at least 60 days before the payments are finally made.
Do You Need this Insurance?
If you want more security and you have the current means to fit this into your portfolio, then an MPI will undoubtedly be a good idea for you. When you determine your current situation of debt, income, mortgage, and education, you can consider the amount you’re willing to spend on your insurance. To apply the dime method, you need to do the following:
- Add all the current debts you have, including your income, balance on our mortgage, and anticipated expenses for your children. If you have a surplus, then you’re covered enough.
- Subtract this sum from any existing coverage you may have. When you notice a shortfall, this is the amount that you need to supplement for your family.
Differences among MIP, PMI, and MPI
MPI or mortgage protection insurance may be easily confused with the other more popular package that homeowners often encounter. This is the PMI which is private mortgage insurance, and you can know about this on this site here. The terms and the letters of the products may be similar, but they have distinct differences and homeowners need to identify the right ones that they need so they don’t spend a lot.
As was described, the role of the MPI is to protect your loved ones by making a total payment of the house’s balance to the lenders, which essentially guards you as well. The PMI will protect the lenders, and this is when you put down less than 20% when you first made the purchase.
There’s also something that makes matters more confusing, and this is the MIP. This term means mortgage insurance premiums, and these are usually common with borrowers of the Federal Housing Administration.
This is like the PMI, where the protection is on the lenders and not the borrower. However, unlike the PMI, the MIP can be removed if the borrowers have made at least a 10% down payment on the house.
Advantages of a Mortgage Protection Insurance Policy
One of the most essential assets that you can own is your home, and you should have a say on what will happen to it. The MPI will add a layer of safety to your heirs, especially if your children are very young. Some of the pros may include:
There’s no acceptance basis, and no one would usually check on your health status.
- Give you Guaranteed Acceptance – You may not be qualified for the term life insurance when you applied. However, fortunately, there’s MPI that will still give you the coverage that you need. These are an advantage for people with a lot of medical issues and are struggling to obtain protection.
- Give you Peace of Mind – Today, the economy during the pandemic is uncertain. These kinds of policies will make the blow from a job loss softer. This will make a massive difference if you’re out of work for several months.
Disadvantages to Know
MPI is optional and supplementary. There are a lot of reasons why most homeowners don’t get it. If you qualify for traditional term life insurance, this might not be a good idea.
- More Expenses – The premiums of the MPI may translate into more expenses each month, and they can add a burden on your budget. However, if you have a lot of cash flow, the amount may be negligible.
- Limited Benefits – When you’re nearing the end of your mortgage and your house is nearly paid in full, it makes no sense to continue this plan. When you paid your current home from the sale of another property you have, this policy is usually not a good choice.
What many would instead do is to stash the extra money for emergency purposes. Also, some people may add cash to their portfolios. In addition to this, if you found yourself with extra money to pay off your loan early, you might not benefit a lot from the MPI.
- Have Better Alternatives – Know that the money goes directly to the lenders, and your loved ones may get only the house when you die. A term life insurance policy may make much more sense because the amount is usually more than enough to cover your home mortgage, hospital expenses, funeral, and more. For people who don’t smoke, term life premiums are much cheaper than MPI.