What Is Mortgage Life Insurance?
Key takeaways
Mortgage protection life insurance (or mortgage life insurance) ensures that your mortgage is paid off when you pass away.
With mortgage life insurance coverage, the benefit is paid directly to the financial institution that holds your mortgage.
If you’re looking to cover more than your mortgage, there are other life insurance options available—like term or permanent insurance.
Liz Caldwell is a senior director of Insurance Solutions at Northwestern Mutual.
When you purchase a new home, you might be wondering what type of financial protection you need to help ensure your family can stay in your home should something happen to you.
Mortgage life insurance is a special type of insurance that will pay off your mortgage if you die—but a term life or whole life insurance policy can offer the same solution with greater value. Here’s how.
How does mortgage life insurance work?
Mortgage life insurance, also known as mortgage protection insurance (MPI) is a life insurance policy that protects your lender. This coverage ensures that the financial institution that holds your mortgage will receive the remaining balance if you die before you make the final payment on your loan.
A mortgage life insurance policy is typically a decreasing term life policy, which means that the amount of the death benefit decreases as the term goes on, just as your mortgage balance decreases. The policy's beneficiary is the home mortgage lender, so unlike with a traditional term or whole life insurance policy, your heirs won't receive any money—it will go directly to the holder of your mortgage.
Life insurance can help protect the life you’ve built.
Your advisor can make personalized life insurance recommendations based on your needs.
Let’s get startedBenefits of mortgage life insurance
Your heirs won’t have to worry about paying off your mortgage
Since mortgage life insurance goes directly to the lender, there's no risk that your family will lose their home because they can't pay off the mortgage after you die.
No medical exam
A mortgage life insurance policy doesn't require a medical exam, so it might be the only life insurance product someone in poor health can qualify for.
Potential for disability protection
Some MPI options offer disability protection through optional riders that can be added to the policy for an additional cost, such as a waiver of premium.
Disadvantages of mortgage life insurance
Your mortgage lender is the beneficiary
Mortgage life insurance is less flexible than term or whole life coverage. With a mortgage life insurance policy, your beneficiary is your mortgage lender. This means that the money from the benefit payout goes directly to your mortgage lender. Your family never handles the dollars that are paid out and has no say in how that money is used or distributed. So if your heirs need money for expenses other than the mortgage, they won’t be protected by mortgage life insurance.
The payout decreases as you pay off your mortgage
A mortgage life insurance policy is a decreasing term life policy: The death benefit decreases as the term goes on, which means that the payout decreases as the balance on your mortgage decreases. Once you pay off your mortgage completely, there is no death benefit paid.
Mortgage life insurance costs more
Because mortgage life insurance generally doesn’t require a medical exam or health questions, you’re likely to pay more for your coverage than you would for traditional term life insurance (particularly if you’re in good health). Plus, as time goes on, the death benefit decreases but your premium typically doesn’t—which means your premium dollars don’t go as far as time goes on.
There’s no cash value with mortgage life insurance
Mortgage life insurance is a term policy, meaning that it only lasts for the length of your term. Term policies don’t allow the opportunity to build cash value like permanent life insurance policies do.
Alternatives to mortgage life insurance
If you’re looking for an option that allows more flexibility and will cover expenses beyond just your mortgage, there are other options available, including:
Term life insurance
Term life insurance covers you for a fixed length of time, and if you die during the specified term, your beneficiaries will receive a death benefit that they can use for any reason—including paying off a mortgage.
Whole life insurance
Whole life insurance covers you for your entire lifetime, and it includes benefits such as a cash value component that you can tap for liquidity while you’re alive. Provided you keep current with your premium payments, the death benefit from a term or whole life policy will be distributed to your beneficiaries after your death to use in any way they want.
Finding the right life insurance policy for your financial plan
Life insurance should be integrated into your larger financial plan to maximize its benefits. Your financial advisor can help you evaluate what kind of life insurance is the best choice for you and how you can build a plan to support mortgage debt or other expenses after you die.
