What is mortgage protection insurance?

Mortgage insurance guarantees that if you die, your mortgage will be paid off — partially or in full. These policies are offered by banks and mortgage lenders, and they do not replace term life insurance, which is a superior product in many ways.

That said, there are certain circumstances where they can be essential in protecting your family.

Bill Gates made a splash in 2017 when he bought $520 million worth of U.S. farmland, and he’s continued to invest since. What’s in it for Gates?

Read More

How does mortgage protection insurance work?

Mortgage life insurance is usually taken out for the same length as your mortgage term. In the event of your death, the insurance pays off the remainder of your loan.

As your mortgage balance decreases, so does your possible insurance payout, even though your monthly premiums stay the same. To make matters worse, the money bypasses your family and goes directly to your lender.

If your family needs the money for more pressing matters, they’re out of luck.

It’s also worth noting that depending on your age, you may be limited to a shorter term. That’s because the older you are, the more likely the insurance will have to make a payout.

Do you need mortgage protection insurance?

Mortgage protection insurance, or MPI, is not mandatory, although it is often confused with private mortgage insurance, or PMI, which in some cases is mandatory.

If your down payment is less than 20% your lender may require you to take out PMI, which offers the lender protection if you default on your loan.

It seems like a tricky time to get into real estate, and being a landlord isn't as passive as you think. Look at these low-stress options instead.

Read More

How much does a policy cost?

Compared to regular term life insurance, mortgage protection insurance isn’t cheap. When you buy mortgage protection insurance, your premium will vary based on the cost of your mortgage and how much of that you want to cover.

The insurance could: pay off your entire mortgage balance; pay off a portion of the balance; or cover your family's mortgage payments for a certain length of time. The more comprehensive the policy, the higher the premiums.

The price you pay also will depend on any riders you choose to add. For example, you can add in a disability rider which will help cover your bills if you come down with a career-ending health condition.

You might find that disability insurance is a better and more cost-effective choice.

When to get mortgage protection insurance

Mortgage life insurance can be purchased through banks, mortgage lenders, private insurance companies and life insurers. If you decide a policy is right for you, you need to act quickly once you buy a home.

After taking out your mortgage, there's normally only a short period when you're eligible to buy mortgage protection insurance. If you miss your window of opportunity, you can always purchase a regular life insurance policy (which your most likely better off doing anyway).

How to get preapproved for a mortgage

A stress-free walkthrough on how to get a pre-approval letter.

See Guide

Bottom line: Is it worth it?

Compared to term life insurance, mortgage life insurance isn’t a very attractive option:

  • It’s usually more expensive.
  • Payouts decrease over time.
  • You have only a short window to buy it.
  • Payouts go to your lender instead of to your family.

That said, mortgage protection insurance does offer one advantage. Unlike other types of life insurance, you normally will not be required to pass a medical exam to buy a policy.

This means that if you have health conditions that prevent you from purchasing term life insurance, mortgage insurance is a great last resort.

What is the best mortgage protection insurance?

The best mortgage protection insurance is the one that provides adequate coverage for your family, while still fitting your budget.

It’s all about finding that balance. It’s reassuring to know that your entire mortgage will be covered. But if full coverage isn't affordable for you, look for companies that offer partial coverage.

Better yet, if you meet the requirements, take out a term insurance policy that's more flexible and costs less — and skip mortgage life insurance.

Frequently asked questions

What is mortgage decreasing term insurance?

Mortgage decreasing term insurance is not a real type of insurance. But there is decreasing term life insurance, which is term life insurance with a death benefit that decreases over time. Those plans are not specifically for mortgages.

Will my lender require mortgage protection insurance?

A lender won't insist that you buy mortgage protection insurance (MPI). It's often confused with private mortgage insurance (PMI), which may be mandatory for homebuyers who make down payments of under 20%.

Do I need life insurance for a mortgage?

You're not required to have life insurance to take out a mortgage. However, by purchasing life insurance, you can ensure that your mortgage is covered in the case of your premature death.

Does mortgage insurance cover illness?

Mortgage insurance covers your mortgage for your family if you die. Normally, it does not cover illness unless you purchase a disability rider, which will help cover your bills if you become disabled and can no longer work.

Are you thinking about saving? Well, stop thinking about it!

Take the change out of your piggy bank and make it work for you.

Acorns is a financial wellness tool that automatically rounds up your card purchases to the nearest dollar and puts those savings into an investment account. It takes the worrying out of investing and matches you with one of five investment portfolios.

Take five minutes to sign up for Acorns today and collect a $10 bonus.

What's Next

About the Author

Mitchell Glass

Mitchell Glass

Freelance Contributor

Mitchell is a freelance contributor to MoneyWise.com.

What to Read Next

Looking For Passive Income? There's One Option Right Below Your Feet

One company’s innovative approach makes farmland investing easier and more accessible.

What is a mortgage?

Yes, a mortgage is a big deal, but it's probably not as complicated as you think.

Want to Earn Big Returns Without the Shaky Stock Market? Try Art

Art investment is no longer reserved for the wealthy

How can I stop the pain and make money in this nightmarish market? BofA says this is the ‘best hope’ for bulls in 2022

Companies could be returning trillions to shareholders. Here’s how to accept it.


The content provided on MoneyWise is information to help users become financially literate. It is neither tax nor legal advice, is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional. We make no representation or warranty of any kind, either express or implied, with respect to the data provided, the timeliness thereof, the results to be obtained by the use thereof or any other matter.