After closing on a mortgage, many individuals immediately begin receiving daily requests in the mail, urging them to make a purchase. Mortgage Protection Life Insurance (MPI). Simply put, MPI is a type of life insurance sold by banks affiliated with lenders and by independent insurance companies, who obtain information about a person’s mortgage through public records.
MPI notification scare tactics
MPI requests are often disguised as official requests from mortgage lenders, which are filled with concrete details such as the name, loan type and outstanding balance of the lender and borrower. In bold lettering, these documents make dangerous headlines such as:
- Important Notice! Please complete and return!
- final notice! Mortgage Security Card!
- Gift Information! Mortgage Free Home Security!
These announcements are often followed by frightening tactic statements such as, “If you died yesterday, would your family be able to continue mortgaging and retaining the qualities of your life?” In the end, these requests present a solution, by offering programs claiming to protect families, in the wake of the tragedy, by paying off the mortgage.
Do You Need Mortgage Protection Life Insurance?
In fact, mortgage protection life insurance policies are generally mis-advised for the following reasons:
- Lack of flexibility: Unlike regular term life insurance, where beneficiaries can use insurance payments as they see fit, most mortgage protection insurers send benefit payments directly to lenders, so your beneficiaries never see any money.
- High premium: If you are a healthy person who has never consumed tobacco, MPI is usually costlier than term life insurance.
- lack of transparency: Unlike other types of insurance, it is difficult to obtain quotes for online MPIs, which is a major concern because mortgage MPI prices can vary widely.
- Fluctuating premiums: Unlike term policies, which charge a fixed premium for 30 years without a surprise price increase, premiums on MPI policies can only be fixed for the first five years, after which they can increase at any time.
Wary of declining payment
Some MPI policies actually offer policies that charge a fixed fee. Premium For the duration of the policy. However, in many cases, payments on these policies may decrease over time as potential payments are reduced. This type of mortgage protection life insurance, sometimes referred to as “declining term insurance”, is designed to pay off your mortgage balance, while each month your beneficiary receives part of your mortgage principal. Pays. As a result, the potential payment of the MPI policy decreases with each mortgage payment.
On the other hand, some new MPI products have a feature known as the “Level Death Benefit”, where payments do not decline. For example, if you are covering a $ 100,000 mortgage, your beneficiary (not the lender) will receive the entire $ 100,000, even if the mortgage loan has fallen to $ 65,000. And if you pay the mortgage while the policy is in effect, some policies allow you to convert your mortgage insurance into a life insurance policy.
- Mortgage protection life insurance (MPI) is life insurance sold by banks affiliated with lenders who obtain information about your mortgage from public records.
- Mortgage protection life insurance companies demand business by telling those who pledge that their loved ones will face financial hardship without such policies.
- Such products have disadvantages, such as high premium and lack of transparency.
- These products can attract people who want to take a policy because their health is poor or their medical history is poor.
Some MPI policies will refund your premiums if you never file a claim after paying your mortgage. However, the premiums returned to you will be much lower, as inflation may have reduced their value. Also, if you had bought cheaper term life insurance, you would have missed the opportunity to invest any money you have saved.
So who will benefit?
Mortgage protection insurance may benefit those who do not qualify for life insurance due to poor current health as MPI is usually sold without underwriting. In these cases, MPI candidates should take quotes from multiple companies and check each firm’s financial strength rating with AM Best, a rating company that ranks insurance companies with letter grades.
Those wishing to avoid down-payment MPI policies should opt for a no-medical-exam term policy (also known as a guaranteed issue) with level premiums and level death benefits. While these policies cost more and may offer less coverage than term policies that review medical history and conduct physical exams, at least they will pay the same benefits, regardless of whether you pay your mortgage. Die in 10 or 25 years.
Another possibility is to get a mortgage protection insurance policy that provides more coverage for a cheaper price earlier in your mortgage term. Once you have paid enough of the principal, consider switching to a guaranteed issue term policy.
As with other types of life insurance, mortgage protection insurance may not be available after a certain age. The state farm only offers 30-year mortgage protection insurance to applicants age 75 or younger (37 or less in New York), and 15-year policies only for those age 40 or younger.
Separate from PMI
Mortgage protection Insurance Is completely different from Private mortgage insurance (PMI), which protects lenders, not you. If you save less than 20% on your home, then you pay a premium monthly. PMI The policy that will pay your lender should you default. However, in the event of your death, your heirs should continue to make mortgage payments, and PMI only starts when family members default.
The hard sale
Advocates of mortgage protection insurance proclaim the importance of adding your product to existing life insurance coverage, assuring you that life insurance payments will be eaten up by mortgage payments, leaving your loved ones in financial distress. But a better solution is to simply buy more life insurance.
Those concerned about mortgaging their loved ones to expensive mortgages should consider term life insurance, which is generally a better solution for mortgage protection life insurance.