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Mortgage Protection Insurance
How does mortgage protection insurance work? Let’s take a case scenario. A husband and wife have been married for decades and are now in their mid-sixties. The husband works full-time, and the wife is a housewife with no job. They have a mortgage, and the monthly payment, including property tax and homeowners insurance, is $4,000 per month. The couple is in their sixties, and the husband dies. The wife has no income to make the existing housing payment. Is there mortgage protection insurance where, if the income-earning spouse dies, the living spouse does not lose the house? And if so, what type of insurance is it, and what are the premiums?
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Mortgage protection insurance (MPI) pays off all or most of the mortgage if the insured spouse dies. This means the surviving spouse can stay in the home without worrying about mortgage payments.
An MPI is usually a type of life insurance policy that decreases over time to match the mortgage balance.
- Many people get this policy when they first take out a mortgage, but it can also be added later.
- Lenders, banks, and insurance companies often offer these policies.
- MPIMPI payments usually remain the same throughout the whole policy, which often lasts as long as the mortgage.
- The payout starts at the mortgage amount and decreases as you pay down the loan. If a claim is made, the lender receives the funds to pay off the remaining mortgage balance.
- If the insured spouse, in this case the husband, dies while the policy is active, the mortgage is paid off in full. The surviving spouse can stay in the home without worrying about mortgage payments.
Limitations of Coverage
- Most policies cover only the principal and interest on the mortgage.
- Other costs, such as property taxes, homeowners’ insurance, escrow payments, and association fees, must still be paid by the surviving spouse.
- As you pay down your mortgage, the policy payout also gets smaller, but your payments usually stay the same.
- If you refinance your mortgage or move, your coverage usually does not continue.
- You will likely need to get a new policy based on your age and health at that time.
- Some policies offer extra features, such as coverage for disability, critical illness, or job loss, but the main benefit remains the death benefit.
- In the absence of insurance, the Garn-St.
- The Germain Depository Institutions Act of 1982 gives most lenders the right to demand full repayment of the loan upon the borrower’s death and the transfer of title to a relative, usually a surviving spouse, who is expected to live in the property.
- Without income to cover the $4,000 monthly payment, the relative risks default and foreclosure.
Many Comparison Websites and Financial Advisors Recommend Standard Level Term Life Insurance Instead of MPI for Several Reasons, Such as:
- If the insured person dies, the payout goes to the chosen beneficiary, usually the spouse, instead of the lender.
- The beneficiary can use the money to pay off the mortgage, cover household expenses, or support the family.
- The payout amount stays the same over time, even as the mortgage balance gets smaller.
- For people in good health, standard level term insurance is usually less expensive and more flexible than most MPI.
- Coverage under a standard term life policy does not change if the insured sells the home or refinances the mortgage.
- MPI can be a good option for people with health issues that make standard term life insurance too expensive or hard to get.
- Many MPI policies offer simple or guaranteed approval, often with little or no medical exam.
Premium Considerations for Applicants in Their Mid-Sixties
Payments depend on factors such as age, health, smoking status, gender, coverage amount, policy length, and type. For people in their mid-sixties, payments are much higher, and coverage periods are shorter, usually limited to 10 or 15 years rather than 20 or 30.
Recent Market Data for Healthy Non-Smokers (actual quotes may vary)
- For MPI or mortgage life policies, $250,000 of coverage for a 65-year-old usually costs $150 to $250 per month.
- Higher amounts, like $400,000, cost between $230 and $390 per month.
- Payments are even higher for people with health problems or who smoke.
- For standard term life insurance, a healthy 65-year-old non-smoking man can expect to pay $80 to $230 per month for a 10-year policy with $250,000 to $300,000 in coverage.
- Longer policies cost more, women usually pay less, and higher coverage means higher payments.
- In their 60s, they often have mortgage balances between $140,000 and $250,000.
- A $4,000 monthly payment shows a large mortgage in an expensive area with higher interest rates.
- To find your exact payment, get personalized quotes that consider your age, health, and location.
Find out your exact mortgage balance and get quotes for MPI (if available), specialized providers, and regular term life insurance for the insured person. Consider adding coverage for taxes, insurance, and other related costs. Review the spouse’s income or pension and think about whether moving to a smaller home could help. Also, include savings,
Security survivor benefits, and other resources. Review any existing policies, such as retirement accounts and life insurance. Talk to a financial advisor or attorney, and connect with an independent insurance agent to explore your options.
Both mortgage protection insurance and term life insurance are designed to protect a surviving spouse and help keep the home in the family. For people in their mid-sixties, coverage is still possible, but it costs much more than for younger buyers. It is important to carefully compare MPI and standard term life insurance. Life insurance is essential.
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