The Bank Sent Me a Letter About Mortgage Protection Insurance. I Threw It Away. Here’s Why.
It’s an Advertisement, Not a Recommendation.
Shortly after I closed on my house, I got an official-looking letter about “mortgage protection insurance” (MPI). It looked like it was from my lender. It wasn’t. It was a cleverly disguised advertisement for a policy that is almost always a bad deal for the homeowner. It’s a decreasing term policy where the benefit shrinks over time, but the premium doesn’t. They count on new homeowners being too busy or confused to notice. I bought my own level term policy instead and got five times the coverage for a lower price.
Why MPI is a Rip-Off: A Decreasing Benefit for a Level Premium.
You Pay More for Less Every Single Year.
Mortgage Protection Insurance (MPI) is one of the worst values in the insurance industry. The death benefit is designed to decline each year, mirroring your mortgage balance. However, the premium you pay stays the same fixed amount for the life of the loan. You are paying the same price for a constantly shrinking amount of protection. In contrast, with a level term policy, your premium is fixed, but your death benefit remains level and high. Always choose the product where your value increases, not decreases.
How a Term Policy Gives Your Family Choices, Not Just a Paid-Off House.
Don’t Let the Bank Make Decisions for Your Grieving Spouse.
If you have MPI and you die, the insurance company pays the bank directly. Your family never sees the money or has a say. But what if paying off a 3% mortgage isn’t the best use of funds? With a level term policy, the tax-free check goes to your family. They have the power and flexibility to decide what’s best. They can pay off the house, or they can use the money to replace your income, pay for college, or invest for their future. It gives them choices.
The Beneficiary of MPI is the BANK. The Beneficiary of Term Life is Your FAMILY.
This is the Only Thing You Need to Know.
This is the most critical distinction. The primary purpose of Mortgage Protection Insurance is to protect the bank’s asset—your loan. The beneficiary is the lender. The primary purpose of a personal term life insurance policy is to protect your family’s future. The beneficiary is your spouse, your children, or your trust. Who are you trying to protect? If the answer is your family, then term life insurance is the only acceptable answer.
What if You Refinance? Your MPI Becomes Useless. Your Term Policy Stays With You.
MPI is Tied to the Loan, Not to You.
A Mortgage Protection Insurance policy is tied to a specific mortgage loan. If you refinance your home in a few years to get a better interest rate, that original loan is paid off, and your MPI policy often becomes void. You would have to re-qualify for a new policy. A personal term life insurance policy, however, belongs to you. It doesn’t matter if you refinance or even move to a new house. The protection follows you wherever you go, providing a stable, reliable safety net.
The Shocking Price Difference Between MPI and a Comparable Term Policy.
The Cost of Convenience is Outrageous.
Because MPI is often sold with simplified or no medical underwriting, the premiums are significantly inflated to cover the higher risk. A healthy 35-year-old might be quoted $80 a month for a $300,000 MPI policy. That same person could likely get a $500,000 level term policy—with a much larger and non-decreasing benefit—for under $40 a month. You are paying double the price for a fraction of the benefit, all for the “convenience” of a policy sold by your lender.
MPI Pays the Mortgage. What About Groceries, College, and Retirement?
Your Family’s Needs Are So Much Bigger Than Your House Payment.
Paying off the mortgage is a great goal, but it solves only one of your family’s problems if you die. What about replacing your income for the next 20 years? What about funding college education? What about ensuring your spouse can still retire comfortably? A large level term policy provides a pool of capital that can do all of those things. MPI is a one-trick pony that solves the bank’s problem. Level term is a comprehensive solution that solves your family’s problems.
The “Post-Claim Underwriting” Trap of Mortgage Protection Insurance.
They Decide if You Were “Eligible” After You’re Already Dead.
Some of the most predatory MPI policies engage in a practice called “post-claim underwriting.” This means they do very little health screening when you buy the policy. But if you die, they will then comb through your medical records to see if there was any reason they could have denied you in the first place. It’s a disgusting practice that allows them to collect premiums for years and then deny the claim when your family needs it most. An individually underwritten term policy approves you definitively upfront.
Don’t Buy Insurance From Your Mortgage Lender. Ever.
A Clear Conflict of Interest.
Your mortgage lender is in the business of lending money and protecting their own financial interests. They are not an unbiased financial advisor looking out for your family’s best interests. They may receive a commission or other incentives for selling you an overpriced, inferior MPI policy. Always keep your financial transactions separate. Get your mortgage from the bank, and buy your life insurance from a licensed, independent insurance agent who can shop the entire market for you.
How a Simple Term Policy Provides Far Superior Protection for Your Home and Family.
It’s Not Even a Fair Fight.
Let’s summarize. Level term life insurance offers a higher death benefit, a level death benefit, a lower premium, and pays the money directly to your family, giving them control and flexibility. Mortgage Protection Insurance offers a lower, decreasing benefit for a higher premium and pays the bank directly. One is a versatile tool that protects your family’s entire future. The other is a rigid, overpriced product that only protects your lender. The choice is clear.