Last updated on December 31st, 2021 at 03:51 pm
Are you asking “what is mortgage protection insurance?” Read this article to learn what mortgage protection insurance is and how it works.
About 60 percent of homeowners in the U.S. have an ongoing mortgage.
If you’re one of these people, you know that securing a mortgage is a major financial decision. A typical mortgage spans a decade or two, meaning you’ll be in debt for several years to come.
And if you’re looking to or are already in the process of applying for a mortgage, you’ve probably heard a lot of terminologies, including mortgage protection insurance.
So, what is mortgage protection insurance? How does it work?
We’ve got the complete scoop. Keep reading!
What Is Mortgage Protection Insurance?
A mortgage, like any other loan, must be repaid fully, with interest.
If you default on a mortgage, perhaps as a result of job loss, permanent disability, or even death, the lender will have no choice but to initiate foreclosure proceedings.
Defaulting on a mortgage could mean your family becomes homeless. Or it could throw your loved ones into extreme financial pressure, assuming your spouse starts repaying the mortgage in a bid to prevent foreclosure.
Here’s is where mortgage protection insurance comes in.
When you have MPI, the insurance company will step in to repay your mortgage, in accordance with the terms of the policy.
This takes us to the next question:
How Does Mortgage Protection Insurance Work?
Mortgage protection insurance pays off your mortgage when you’re unable to, but this is a broad, simplistic answer.
In truth, how Mortgage protection insurance works depends on the agreement you have with your insurance provider.
Some policies will only kick in only when a certain event is triggered.
For example, if the terms of your Mortgage protection insurance state that the insurer will fully pay off the mortgage balance only after the policyholder dies, then your policy will indeed kick in after your death. If you become permanently disabled, your policy won’t be activated.
Other policies will keep paying off the mortgage for a certain period of time. For instance, most MPIs pegged on job loss will keep paying your monthly mortgage for a year or two. The assumption is this will give you enough time to find another job and get back on your financial feet.
Also, mortgage protection insurance will only pay the principal and interest you owe. If you have other expenses, such as homeowner’s association fees or property taxes, you’ll have to take care of those out of your pocket.
When you have Mortgage protection insurance, you pay monthly or annual premiums depending on the company. You can use a lenders mortgage insurance calculator to compare various quotes before buying.
Is Mortgage Protection Insurance a Must-Have?
Mortgage protection insurance isn’t a mandatory requirement. You’ll still get a mortgage even if you don’t buy it – as long as you meet the mortgage approval requirements.
To know whether you need MPI, evaluate your financial and health situation. If you’re more likely to fall behind on your mortgage payments for one reason or the other, it’s prudent to buy Mortgage protection insurance.
MPI Gives You Great Peace of Mind
Your question, “What is mortgage protection insurance?” is now well answered. What’s more, you now also know how it works, and whether you should buy it.
In general, Mortgage protection insurance can be summed into three words: peace of mind. When you have a mortgage, there’s nothing that will give you peace and comfort other than knowing you won’t lose your home even when you’re unable to repay the loan.
Stay tuned to our blog for more insurance and personal finance tips.