Is life insurance or mortgage protection insurance a better choice for you and your family? This decision depends on the situation. There are factors like age, health, home down payment amount, and even your career that can help you determine the answer.
What is Mortgage Protection Insurance?
First, let’s differentiate between mortgage protection insurance and private mortgage insurance. Mortgage protection insurance (MPI) is completely voluntary. Mortgage protection insurance is not required by the lender. Mortgage protection insurance is purchased to help pay off the balance of your mortgage should you die before paying off your home loan.
Private mortgage insurance (PMI) is often required if you take out a conventional mortgage and you put less than 20% down on the purchase of your property.1 Private mortgage insurance is intended to protect the lender against loss if you were to default on the payments.
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Private mortgage insurance (PMI) is often required if you take out a conventional mortgage and you put less than 20% down on the purchase of your property.
Which Life Insurance policy should you choose?
With a whole or term life insurance policy, that is not mortgage protection insurance, your beneficiary may choose how to spend the policy benefits they receive upon your passing. If they choose, the benefits can be used to pay off a mortgage should your family opt to remain in the home. However, most mortgage protection insurance can
only be used for the purpose of helping pay off the mortgage.
2
Most
life insurance policies retain their value for as long as the policy is active. However, for most mortgage protection insurance policies, the benefit decreases as you pay down your mortgage.
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Based on the limited flexibility, you might wonder why someone would choose MPI over life insurance. Sometimes, people simply do not qualify for life insurance, or the rates are too high. This could be due to health, age, or a risky occupation. In such cases, individuals might purchase mortgage protection insurance to help pay off the balance of their mortgage upon their death.
Either way, by purchasing a life insurance policy or a mortgage protection insurance policy, you can provide your loved ones with help paying their expenses after your passing.