Your home is likely the most significant asset you’ll ever invest in. While there are many steps you can take to protect this investment while you’re alive, you may be wondering what will happen to your home when you die.
The right type of life insurance can help you protect your mortgage and ensure that your family can continue living in your home once you pass away. In this article, you’ll learn which type of life insurance offers mortgage protection.
What Is Mortgage Protection Insurance?
Mortgage protection insurance is a basic insurance policy that allows your family members to pay off your mortgage if you die before it has been fully paid off.
Some of these policies will only provide insurance coverage for a set period. MPI insurance is also referred to as mortgage life insurance.
What Is Term Life Insurance Mortgage Protection?
If you want to apply for a life insurance policy that offers mortgage protection, consider a term life insurance policy that provides enough coverage to pay for your mortgage.
If you pass away while the term of the policy is still in effect, your loved ones will receive the value of your policy, which can be used to pay off your mortgage. Keep in mind that the money you receive from this policy is tax-free and can be used for practically anything.
Difference Between Mortgage Protection Insurance and Term Life Insurance
The majority of mortgage protection insurance policies work just like standard life insurance policies. A monthly payment must be made to have access to these benefits. The death benefit will be paid out if you die during the policy term.
One key difference between MPI insurance and term life insurance involves how these policies are regulated. With MPI, the balance of your death benefit will match the balance of your mortgage. This means that your policy will become less valuable over time since you’ll be paying off your mortgage.
In comparison, term life insurance pays out a specific amount determined when you first signed up for the policy. If the policy is worth $200,000 and the remaining balance on your mortgage is $100,000 when you pass away, your beneficiaries will still receive $100,000 after the mortgage has been paid off.
The beneficiary for an MPI policy is your mortgage provider as opposed to your family. Once you pass away, the funds from your MPI policy will be sent to your mortgage provider. When it comes to term life insurance, your family will receive the funds directly and can spend it any way they see fit.
The Bottom Line
Choosing the right life insurance policy can be challenging, with numerous options to select from. If your main goal is to use your policy for mortgage protection, a term life insurance policy is likely the best option for you.