Homeowners: Know how to protect your family by protecting your mortgage

If you own your home, think about everything you and your family love about it.

Do you love having a place of your own, where your family can make life-long memories? Is it the pride of home ownership, and the privacy and freedom it gives you? Or, is it the long-term financial benefit of building equity in your home that may help you afford a better retirement one day? It could be all of the above and more.

Now imagine what happens to everything you and your family love about your home if you suddenly pass away and your family can no longer afford to pay the mortgage. Your family may have to sell the home or worse, your home could end up in foreclosure. Your family could lose any equity in the house, will have to move, possibly change schools and face other hardships at a time that’s already hard enough.

It doesn’t matter if you’re one of the many new homeowners taking advantage of record-low interest rates, or if you’ve owned your home for years — it can happen to you. Fortunately, this crisis can be avoided. Using life insurance from an insurance company, you can create a low-cost Mortgage Protection Plan and choose the amount of insurance you need so the death benefit can help your family pay off the mortgage plus other related expenses in order to keep the family home.

Mortgage protection strategies are not the same

A Mortgage Protection Plan with life insurance is one great strategy that smart homeowners use to guard against the unexpected, but there are other options available as well. Understanding the differences between strategies can help you decide on the best approach for you.

MPI pays the lender; a Mortgage Protection Plan with life insurance pays your family

Mortgage Protection Insurance, sometimes known as MPI, is a common product offered by banks and mortgage companies to protect themselves in case you default on your mortgage. The key difference between MPI and a Mortgage Protection Plan with life insurance is the beneficiary — in the event of your death, MPI pays the mortgage lender directly, while with a Mortgage Protection Plan with life insurance, you can choose the beneficiary, such as a spouse, child or executor of your estate. pays 

While MPI only covers the value of the mortgage, a Mortgage Protection Plan with life insurance allows you to choose the amount of coverage you want. This allows you to provide a generally tax-free death benefit that can cover not only your mortgage, but also other homeownership expenses such as:

  • Property tax
  • Homeowner association (HOA) dues
  • Maintenance
  • Water and sewer services
  • Electricity and heating costs
  • Homeowner insurance
  • Unexpected repair bills

Since the life insurance pays your beneficiary and not your lender, the beneficiary you selected can decide how to use the proceeds.

In addition, a Mortgage Protection Plan with life insurance is portable and can stay intact should you sell your home. You can use it to help protect the mortgage you take to buy a new home without having to re-apply for coverage. When the unexpected happens, this flexibility can become important to your family.

The MPI death benefit frequently decreases over time to match a shrinking mortgage value. And some MPI policies don’t reduce the cost even though the value of coverage decreases. A Mortgage Protection Plan with life insurance retains its original value, which means your beneficiary can receive a payout that may exceed your mortgage and expenses. That said, since it can also be flexible, you can choose to lower your coverage to align with your mortgage and related expenses, and likely reduce the cost of the life insurance.

Despite its name, Private Mortgage Insurance, or PMI, also protects the lender from any losses should your home be foreclosed on. PMI is typically required for homeowners who use less than 20% as a down payment on their home acquisition. PMI only protects the lender should your home be worth less than the debt on it when you or your family default on your mortgage payments. It does not protect your home from going into foreclosure.

Creating a Mortgage Protection Plan with life insurance

A Mortgage Protection Plan with life insurance is typically executed using low-cost term life insurance ranging from 10 to 30 years. However, depending on your goals and resources, you can also create a customized solution that combines term and permanent life insurance with the potential to build tax-deferred cash value. Additionally, in a lot of cases, term life insurance coverage can potentially be converted to permanent coverage without needing evidence of insurability should your needs change, and if you would like permanent protection.

Your home may be the largest investment you and your family ever make. It is also an investment that rewards you in so many ways, from priceless memories to potential long-term economic benefits for your retirement. Protecting your family by protecting their ability to pay the mortgage is an investment in everything they love about your home. It’s also a critical investment in your family’s future.

417965D CAN/US 12/20