Mortgage Protection Insurance

Mortgage protection insurance (MPI) is an insurance policy that pays off the remainder of your mortgage if you pass away or if you become disabled and can’t work. In that way, it functions similarly to life insurance and disability insurance.

Generally, MPI policies — which can often be purchased from banks and mortgage lenders — only cover the principal and interest portion of a mortgage payment. That means other fees like HOA dues, property taxes and homeowners insurance would still be your responsibility. You might be able to add a policy rider, however, to cover these expenses.

As you pay off your mortgage, the insurance payout stays the same and so do your premiums. In some cases these types of policies can be easier to get than life insurance because there’s no requirement for a medical evaluation.

Mortgage protection insurance can easily be confused with another abbreviation: PMI, or private mortgage insurance.

If you’re getting a conventional mortgage with less than 20 percent down, you’re required to pay PMI until you accumulate 20 percent equity in your home, either by paying down your loan per the repayment schedule, prepaying your loan or having your home reappraised.

PMI doesn’t protect you, however — it protects the mortgage lender if you were to stop paying back your loan.

There’s yet another acronym: MIP, which stands for Mortgage Insurance Premium and applies to FHA loans. Like PMI, MIP protects the lender, not you. However, unlike PMI, you’ll pay MIP for the duration of the loan term, in most cases.

Both PMI and MIP are required insurance coverages. An MPI policy is entirely optional.

The amount you’ll pay for mortgage protection insurance depends on a variety of factors, including the insurer and the current balance of your mortgage.