Owning a home can be one of the largest financial obligations people have in life. If something unexpected happened and you were no longer able to make payments, your mortgage could quickly become unaffordable for your partner or any co-signers. This could put your family at risk of losing their home during an already devastating time.
Whether you’re a first-time homeowner or have experience in owning real estate, it is crucial to have some kind of assurance that your mortgage wouldn’t be a burden to your loved ones if you weren’t around.
According to the U.S. Census Bureau, 63% of homeowners in the U.S. have mortgages. The average new mortgage balance in the United States in 2017 was $260,386, and those numbers are on the rise. Mortgage debt in the U.S. has been steadily increasing over the past years. The more debt we’re in, the harder it is on a co-signer to finish making those payments. This is why it is more important than ever to have coverage in case you weren’t able to finish making payments.
MPI is designed around your mortgage debt. It is often sold during the home-buying process and its purpose is to protect your mortgage lender. If you pass away while the policy is active, the payout goes to your lender for the outstanding balance. Typically, as you pay off your mortgage and your balance owed goes down, your coverage amount also goes down. It’s common for lenders to offer this coverage as part of a mortgage package.
Term life insurance provides more flexibility than MPI, allowing you to choose your beneficiary, the amount of coverage, and the length of the policy term. It provides coverage for a set period of time referred to as the “term,” and is designed to protect your dependents throughout the term of your policy. Term life insurance can be used to cover a wider range of debts and expenses including your income, college tuition, medical bills, living expenses, and more.
A term policy typically offers the best value for many households because you can choose the coverage amount, select your beneficiaries, and choose a term that’s customized to the length of your financial commitments.
Additionally, most families need to cover more than just a mortgage, which is why term life insurance is often a better option. Even if you choose a 15-year mortgage, consider buying a longer term to provide for your family through all or most of the years you expect to generate income.
Financial expert advice from Dave Ramsey to NerdWallet recommend always choosing term life insurance over MPI. The only time it's your best option is when you can’t qualify for term. Because there’s usually no medical exam with MPI, you can likely get coverage even if you have severe medical issues.
Life insurance is about protecting those you love, so any kind of insurance is better than no insurance.