Mortgage Protection Insurance For Unemployment

Oct 25, 2023 | Mortgage Guides

Disclaimer: Wesley Mortgage does not offer Mortgage Protection Insurance. We’ve prepared this guide to help you better understand your mortgage options.

The promise of mortgage protection insurance (MPI) may be enticing. In the event of your passing, your loved ones can still keep the home with the mortgage paid off. But this type of insurance can do more than that.

Many MPI policies also cover mortgage payments during unemployment or disability. Job loss insurance provides temporary financial protection in times of need, such as being released from your job, seeking your first job, or being self-employed. MPI can be worth looking into for cases like these.‍

Following is a guide on who should purchase mortgage protection – discover what MPI is, learn how unemployment protection works with it, and consider its other benefits as well as drawbacks.

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What Is Mortgage Protection Insurance?

MPI provides financial services to the policyholder’s family if they pass away before paying off their home loan. With a mortgage protection policy, borrowers alleviate the stress of burdening their beneficiaries by furnishing a payout to cover future mortgage payments.

Some policies have further protections that can also pay one’s mortgage for a short period in the case of losing work or becoming handicapped. Other than that, payouts are granted when the policyholder dies, which is why MPI is often referred to as mortgage life insurance.

Is MPI Required for Homeowners?

Unlike other mortgage insurance, MPI is not mandatory when purchasing a property. Lenders and realtors sometimes recommend this policy, but the sole decision belongs to the homebuyer.

Private mortgage insurance (PMI) can be confused for mortgage protection due to similar acronyms, but they are dissimilar. MPI is a form of life insurance that is voluntary. PMI, on the other hand, is for the lenders and is required when homebuyers make a down payment of less than 20 percent of the purchase price, and the policy remains in place until meeting that threshold.

How Much Does MPI Cost

Several variables affect how much mortgage protection insurance coverage will cost. Insurance companies will look at the borrower’s outstanding balance and the remaining duration of the loan term to calculate the payout and premium. They will also take into account the policyholder’s age, occupation, and general risk level.

On average, homeowners can expect basic MPI coverage to cost at least $50 per month, higher for more comprehensive policies.

Does Mortgage Protection Insurance Cover Job Loss

When obtaining a mortgage loan, borrowers have the option to purchase unemployment protection insurance. This coverage is often included with mortgage protection policies. If laid off by an employer, MPI can prevent falling behind on mortgage payments for a limited time. Not all insurers will offer job loss and disability protection, so if interested, confirm its inclusion with the policy.

Understanding Unemployment Protection on a Loan

Unemployment protection is an insurance policy one can include with home or personal loans. It intends to continue paying the mortgage on the policyholder’s behalf in the chance of losing their job. It’s crucial to understand that unemployment protection covers loan payments in the event of layoffs, lockouts, strikes, or union disputes. Claimants must demonstrate that they were not at fault for their job loss and that it was involuntary.‍

While unemployment and disability protection is an added benefit of MPI, it can result in higher costs than a term life insurance policy. That is often the case for young and healthy individuals who would benefit from the underwriting process to qualify for lower premiums. One’s premium gets amortized into their mortgage installments as a percentage of the total insured loan.

It’s worth noting that by adding insurance to a loan, interest will also have to be paid, raising the loan’s cost. Being covered by unemployment insurance might provide peace of mind, but it can be pricey. ‍

Alternative Unemployment Protection Policies

Other job loss insurance types are available to individuals who do not qualify for affordable mortgage protection premiums. The government provides one, another is from a third party, and the last involves personal savings.

  1. State/Federal Unemployment: Government unemployment relief assists in replacing partial income if you lose your job involuntarily. Each state varies in qualification requirements and benefits. There are also often limits on the number of weeks per year that one can cash these benefits.
  2. Supplemental Unemployment: This insurance is designed to be an add-on to government unemployment compensation, equating to half of one’s weekly earnings. These private insurance companies base the benefits on each policyholder and the provider.
  3. Develop an Emergency Fund: Other ways to safeguard mortgage without unemployment insurance includes developing an emergency fund.  This reserve can cover home loan payments in the event of job loss.

Consult with your mortgage lender or insurance agent to determine the best course of action.

Pros and Cons of Mortgage Protection Insurance

Mortgage protection insurance is not mandatory. Before determining whether an MPI policy would be helpful, weighing the advantages and disadvantages is paramount.

What Are the Pros of MPI?

  • Guarantees the Mortgage Gets Paid: MPI gives homeowners peace of mind knowing that their mortgage payments will continue if they pass away before paying it off.
  • Includes Additional Protections: Some policyholders who face unemployment or disability have the benefit of using MPI to cover mortgage payments for a limited time.
  • Underwriting Is Not Required: Underwriting and medical exams are necessary to evaluate a life insurance policy risk. For some folks, that means higher premiums or getting denied coverage. Not with MPI, which bypasses underwriting procedures.
  • More Accessible and Often Cheaper: Without underwriters basing policies on the level of risk, MPI provides guaranteed approval. Suppose life insurance is not affordable due to health reasons. In that case, an MPI policy with affordable premiums may be easier to secure.

What Are the Cons of MPI?

  • Death Benefit Is Limited: While an MPI payout might relieve your family of the burden of mortgage payments, there may be other expenses. Unlike traditional life insurance, the family cannot use MPI to cover other debts such as utility bills, property taxes, funeral costs, etc.
  • Age Limits: Mortgage protection insurers are often constrictive on age requirements, sometimes not issuing to those over 45. Most providers suggest taking out a policy within two or five years after buying a home or risk missing the opportunity.
  • Declining Payout Policies: Despite paying the same premium for the entirety of coverage, the payout reduces over time to mirror the mortgage’s outstanding balance.
  • Overlaps With Life Insurance: Many homeowners have a life insurance policy with benefits that overlap with and negate the need for MPI. Since a life insurance payout goes to the policyholder’s beneficiary, they can spend that money however they see fit, including paying off the mortgage.

Who Should Purchase Mortgage Protection Insurance

Borrowers might not need to purchase this insurance if they are in excellent health, in a secure employment position, do not have lifestyle hazards, and are protected elsewhere via life insurance, for example. However, consider speaking with an insurance representative or real estate agent if you believe your situation would justify having mortgage protection insurance.

Disclaimer: Wesley Mortgage does not offer Mortgage Protection Insurance. We’ve prepared this guide to help you better understand your mortgage options.

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