Why Your Mortgage Lender Doesn't Tell You About Mortgage Protection Insurance

When you closed on your home, your lender probably offered you mortgage insurance. But here's what they didn't tell you: there's a better option that protects your family, not the bank.

Let's explore the difference between what lenders sell and what actually serves your family's best interests.

Mortgage Insurance vs. Mortgage Protection: Understanding the Difference

These two products sound similar but serve very different purposes:

The fundamental difference is simple: lender's mortgage insurance protects the bank's investment. Mortgage protection insurance protects your family's home.

The Problem with Lender's Mortgage Insurance

When you put less than 20% down on a conventional loan, you're typically required to pay Private Mortgage Insurance (PMI). For FHA loans, it's called Mortgage Insurance Premium (MIP). Here's why this isn't ideal protection:

1. The Bank Gets Paid, Not Your Family

If you pass away, PMI pays the lender the remaining balance. Your family gets nothing—they just don't owe the mortgage anymore. But what about:

• Property taxes?
• Home maintenance?
• Utilities?
• Other living expenses?

Your family might be mortgage-free but still unable to afford to stay in the home.

2. Coverage Decreases While Premiums Stay the Same

With PMI, you pay the same premium even as your loan balance decreases. You're paying for less and less protection over time.

3. No Flexibility

PMI is tied to your specific mortgage. If you refinance or move, you start over. There's no cash value, no living benefits, and no control.

How Mortgage Protection Insurance Works Better

True mortgage protection insurance is a life insurance policy designed to cover your mortgage if something happens to you. Here's why it's superior:

Your Family Receives the Money

When you pass away, the death benefit goes directly to your beneficiaries—not the bank. They can:

• Pay off the mortgage
• Keep making payments and invest the rest
• Use funds for other pressing needs
• Make the choice that's best for their situation

Level Coverage, Level Premiums

Your coverage amount stays the same throughout the term, even as your mortgage balance decreases. This means your family has more protection over time, not less.

Living Benefits Included

Many mortgage protection policies include living benefits, meaning you can access funds if you're diagnosed with a critical, chronic, or terminal illness. This can help you:

• Make mortgage payments while you're unable to work
• Cover medical expenses
• Maintain your quality of life during treatment

Portability

Your policy follows you. If you refinance, move to a new home, or pay off your mortgage early, your coverage continues. You're not starting from scratch.

Real-World Scenario: The Martinez Family

Consider the Martinez family: Maria and Carlos bought their home for $350,000 with a 30-year mortgage. They have two children, ages 8 and 12.

Scenario A: PMI Only

Carlos passes away unexpectedly. The PMI pays off the remaining $280,000 mortgage balance. Maria owns the home free and clear, but:

• She's lost Carlos's $75,000 annual income
• Property taxes are $4,800/year
• Home insurance is $2,400/year
• Utilities average $300/month
• The kids still need to eat, go to school, and eventually college

Maria may be forced to sell the home she and Carlos built together because she can't afford the ongoing expenses.

Scenario B: Mortgage Protection Insurance

Carlos had a $500,000 mortgage protection policy with living benefits. Maria receives the full $500,000 death benefit. She can:

• Pay off the $280,000 mortgage
• Have $220,000 remaining for living expenses
• Stay in the family home
• Maintain stability for her children during an incredibly difficult time

The difference is life-changing.

What to Look for in Mortgage Protection Insurance

When shopping for mortgage protection, consider these factors:

1. Coverage Amount Choose coverage that exceeds your mortgage balance. Factor in property taxes, maintenance, and a cushion for your family.

2. Term Length Match the term to your mortgage. If you have a 30-year mortgage, consider a 30-year term policy.

3. Living Benefits Ensure your policy includes critical, chronic, and terminal illness riders. These are often included at no extra cost.

4. Return of Premium Option Some policies offer a return of premium rider—if you don't use the policy, you get your premiums back. It costs more but provides peace of mind.

5. Convertibility Look for policies that can be converted to permanent coverage without a new medical exam. Your health may change, and this option protects your insurability.

Common Questions About Mortgage Protection

Q: Is mortgage protection insurance required? A: No, it's optional. Unlike PMI (which lenders require with low down payments), mortgage protection is a choice you make to protect your family.

Q: Can I get mortgage protection if I have health issues? A: Yes, many companies offer simplified issue or guaranteed issue policies. Coverage amounts may be limited, but options exist.

Q: How much does mortgage protection cost? A: Costs vary based on age, health, coverage amount, and term length. A healthy 35-year-old might pay $30-50/month for $300,000 in coverage.

Q: What if I pay off my mortgage early? A: Your policy continues. You can keep it as general life insurance, reduce the coverage, or cancel it.

Taking Action

If you currently only have your lender's mortgage insurance, you're protecting the bank—not your family. Consider adding true mortgage protection insurance to ensure your loved ones can stay in their home no matter what happens.

The peace of mind is worth far more than the monthly premium.

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Want to explore mortgage protection options for your family? The Tipton Agency specializes in finding the right coverage at the right price. We'll show you exactly what your family would receive—and what it costs to protect them.

Get a free quote: 623-230-9507 or request information online [blocked].