MPI vs. Term Life Insurance
When deciding whether a mortgage protection insurance policy is right for you, it’s important to keep in mind that MPI is a type of life insurance. A regular term life insurance policy will also include coverage for a policyholder’s mortgage balance but provides additional coverage and more flexibility than an MPI policy, and often at a much lower cost. There are various reasons that a homeowner would choose a term life insurance policy over an MPI policy, and just as many reasons for someone to choose an MPI policy over life insurance. It just depends on your personal finance options and coverage needs.
Aside from term life insurance coming at significantly cheaper premiums for healthy adults than mortgage protection insurance, the main differences between MPI policies and term life insurance policies are their death benefits, beneficiaries, and term lengths.
Death benefits are the potential payouts available to the policy’s beneficiary after a policyholder dies. Most MPI policies ’ death benefits match the balance of your mortgage, meaning that if you die, your policy will pay off your entire mortgage—no more, no less. Some MPI policies offer level death benefits, meaning the value doesn’t decrease with your mortgage balance, but these come at higher premiums.
On the other hand, term life insurance policies allow policyholders to determine their necessary amount of coverage. This gives homeowners the freedom to include the cost of their mortgage, as well as costs like living expenses, any additional debt in the homeowner’s name, and anticipated education expenses for their children in their life insurance policy. This coverage comes with a much higher payout than an MPI policy alone, plus term life insurance policies often come at significantly cheaper premiums than mortgage protection insurance policies.
Mortgage protection insurance policies require the listed beneficiary—or the person who receives your death benefit —to be your mortgage lender. This ensures that your mortgage protection insurance company will send all mortgage payments directly to your mortgage lender until your home is paid off.
If you are looking for a policy to protect your family’s finances in the event of your injury or death, a term life insurance policy allows you to name beneficiaries who will receive and manage your death benefit. This means that you can designate a family member or friend to assist your children and dependents with handling your assets if you cannot. That way, your beneficiary can choose how to spend your death benefit, so it can cover the cost of your home and your family’s living expenses or be used as savings after your family members lose their primary source of income.
Term life insurance policies also offer more flexible term lengths than MPI policies. An MPI term length will match your mortgage (which usually comes with either 15-year or 30-year term lengths). With term life insurance, a policyholder can choose their term length. Some life insurance companies offer term lengths in 5- or 10-year increments, while others allow policyholders to choose any term length they like. Your age may also restrict your possible MPI term length, as some mortgage protection insurance companies have age restrictions. Some companies don’t allow homeowners over 45 years old to hold policies exceeding 15-year term lengths, and others don’t allow homeowners over certain ages to obtain MPI policies at all.
If you haven’t yet decided whether you want an MPI or term life policy, consider comparing quotes on Insurify for free.
