What Is Mortgage Protection Insurance?

The short answer

Mortgage protection insurance is life insurance set up with your mortgage in mind. If you die while the policy is in force, it pays a death benefit that your family can use to pay down or pay off the mortgage, or to keep making the payments.

For many households the mortgage is the largest monthly bill. This kind of coverage exists so that losing an income does not also mean losing the home.

How it works

In most cases it is a term life policy. You choose a coverage amount close to your loan balance and a term close to the years left on the loan. With most policies the benefit goes to the beneficiary you name, and they decide how to use it.

Some policies have a level benefit that stays the same throughout the term. Others have a benefit that decreases over time, roughly in line with a shrinking loan balance. Which you are offered depends on the carrier and the policy.

What it is not

It is not homeowners insurance, which covers the building and its contents. It is not private mortgage insurance (PMI), which a lender may require and which protects the lender, not your family.

It also does not automatically cover job loss, disability or illness. Some policies offer riders for certain situations, at added cost and with their own conditions.

Who tends to consider it

People often look at it soon after buying a home, when the loan balance is at its highest, or when a household depends on one or two incomes to make the payment. Parents of young children are another common group.

Questions worth asking

Who receives the benefit: my beneficiary or the lender? Does the benefit stay level or decrease? Can I keep the policy if I move or refinance? What riders are available, and what do they cost? A licensed professional can answer these for the specific policies available in your state.