There’s a lot of confusion about what type of life insurance you need to cover a mortgage.
And, to complicate matters, there are many mortgage life insurance products available that confuse matters even further.
It's important to buy some form of life insurance to cover your mortgage because if you don’t, your surviving family members may not be able to pay for the mortgage and the lender could foreclose on the home.
Most lenders generally want the mortgage amount paid off in full when the principal signatory passes away. The lender may allow the survivor to reapply for a new mortgage afterwards, but each lender has their own policies which vary.
Let’s clear up the confusion so you understand your choices.
What is Mortgage Protection Insurance (MPI)?
Mortgage Protection Insurance, also known as Mortgage Protection Life Insurance, is a product offered through lenders indirectly through a life insurance company, or is sold directly by a life insurance company.
There are variations of these products available. Some products are similar to a decreasing term life insurance policy, while others are a level term type of policy.
Some of the policies available will pay the death benefits as a lump sum while others will pay out death benefits as an annuity to cover the mortgage payments over time. Policies which pay out death benefits as a lump are more expensive than those which pay out as an annuity.
There are also variations of these products which contain attached riders which will also provide coverage for accident and sickness such as if you can no longer work, or to cover the life insurance premiums so coverage will continue. Needless to say, this additional coverage is convenient but is also more expensive.
Also, some policies will make the lender the beneficiary while others will allow you, as the policy holder, to name your own beneficiary. The advantage in the latter is that it allows your beneficiary to use the funds in any manner they choose. ...continue reading