Ethical Homes

A lot of homeowners have recently been getting offers of “Mortgage Protection Insurance”, which would pay off their mortgage in case of death or disability; for most homeowners, though, Mortgage Protection Insurance isn’t a great deal.

There are three main reasons that Mortgage Protection Insurance (MPI) doesn’t make sense for most homeowners:

1. MPI policies are usually pretty expensive—usually, in fact, they are more expensive than the same amount of coverage under a “regular” life insurance or disability insurance policy.
2. Under most MPI policies, if a covered homeowner dies, all the insurance policy will do is pay off the homeowner’s mortgage—and that means that with every passing year, as the homeowner pays their mortgage balance down, the coverage that they are getting effectively decreases, while their premiums stay at the same high level; under a regular life insurance policy, on the other hand, in the tragic event that a homeowner does die, their heirs would get the full amount of the coverage and would be able to keep and use any money left over after paying off the mortgage.
3. For most homeowners, death or disability is (thankfully) a pretty rare occurance; a far more common risk for most homeowners is that they might lose their job and thus be unable to pay their mortgage—and that is a risk that most MPI policies do not cover at all.

So an MPI policy will usually cost a homeowner more than a regular insurance policy, while giving them less coverage and not addressing the most common risk that might affect a homeowner’s ability to pay their mortgage.

For these reasons, I usually advise most homeowners who are concerned about possible events that might leave them unable to pay their mortgage to skip the MPI policies. Instead, they should make sure that their life and disability insurance coverage is sufficient to cover their mortgage in addition to any other expenses they might have in such a situation; to be really safe, they can take the difference between the money they would spend on a pricey MPI program and the lower premiums for a regular insurance policy, and set up an emergency savings fund to cover their expenses in case of a short-term job loss.

Disclaimer: Always consult a licensed professional about insurance questions.

If you’ve got questions about your current insurance coverage, we’d be happy to give you a referral to a trusted insurance agent who can help you to evaluate your current situation and make sure that the coverage that you have is appropriate to your needs.