What it is
Mortgage protection insurance is a life insurance policy, usually term, sized to what you owe on the house. If you die during the term, the carrier pays the death benefit to the beneficiary you named. They can pay the mortgage off, keep making payments while they decide, or sell on their own timeline. The point is that the decision is theirs and not the bank's.
Most policies come in two shapes. Level coverage pays the same benefit for the whole term. Decreasing coverage tracks the loan down as you pay it off, which costs less because the carrier's risk shrinks each year. Many policies in this market use a health questionnaire instead of a medical exam, and some are guaranteed-issue with a waiting period.
What it isn't
| Who it protects | Who gets paid | Required? | |
|---|---|---|---|
| Mortgage protection | Your family | The beneficiary you name | No |
| Private mortgage insurance (PMI) | The lender | The lender, if you default | Usually, below 20% equity |
| Lender-sold mortgage life | The lender | The lender, directly | No |
| Homeowner's insurance | The house | You and the lender, for damage | Yes, by the lender |
The confusion is deliberate in some corners of this market. Mailers arrive in envelopes that look like they came from the servicer, quoting your balance from public records. They aren't from your lender. Neither are we. The test is simple: who is the beneficiary? If it's the bank, it's the bank's product.
Who it fits
- A household where one income carries the mortgage.
- A homeowner whose work coverage would end with the job, or is a fraction of the balance.
- Anyone who wants the house to be a certainty for the people in it, whatever else has to be sorted out.
What to ask before you buy
- Is the benefit level or decreasing, and what is it in year ten?
- Is there an exam, a questionnaire, or neither, and is there a waiting period?
- Does the term match the years left on the loan?
- Who is the beneficiary, and can I change them?