Purpose: Specifically designed to cover your mortgage payments in case of certain events that prevent you from paying your mortgage. This can include death, disability, or job loss, depending on the policy.
- Beneficiary: The beneficiary of an MPI policy is typically the mortgage lender, not your family. The insurance payout is used to pay off the remaining mortgage balance directly to the lender.
- Coverage: The coverage amount decreases over time, paralleling the decline in your mortgage balance as you pay it off. Therefore, the potential payout decreases as you get closer to paying off your home.
- Term: The term of MPI is directly related to the term of your mortgage. Once the mortgage is paid off, the MPI policy expires.
The purpose of life insurance is to support your beneficiaries financially in the event of your death. This can be utilized to pay for a range of charges, such as housing bills, schooling, mortgage payments, and any other financial obligations your family may have.
A life insurance policy allows you to designate any individual as a beneficiary, and that person will receive the death benefit directly. This increases the amount of freedom your family has in allocating the money.
Unless you have a decreasing term life insurance policy, the coverage amount is fixed based on the policy you purchase and does not reduce over time. This implies that, regardless of the amount of your mortgage, your beneficiaries will get a fixed sum.
Term life insurance provides coverage for a predetermined period of time (such as 10, 20, or 30 years), whereas permanent life insurance lasts for the entirety of an insured person’s life provided premiums are paid. Your mortgage is not need to be connected to the term.
Selecting Between Life Insurance and MPI:
- Your family’s needs, your aspirations, and your financial status will all influence your decision between MPI and life insurance.
- More flexibility is available with life insurance, which can serve as a safety net for purposes other than your mortgage. If you’re looking for a coverage that can help your family with more general financial needs following your death, it’s usually advised.
- MPI is more specialized and guarantees mortgage repayment, which can be important to some people. Because the dividend can only be used to pay off your mortgage balance, it gives less flexibility.
To find the policy that best fits your goals and circumstances, it’s always helpful to assess your entire financial plan and perhaps speak with a financial expert.