What is Mortgage Protection Insurance?
If you’re a homeowner, you pay for homeowners’ insurance to protect your property from a wide range of worst-case scenarios. Mortgage protection insurance (MPI) is a distinct sort of insurance that can help you if you can’t pay back your loan. The added security sounds appealing, but when does it make sense for you to do so?
As a homeowner, you want affordable, comprehensive coverage for your home.
Mortgage protection insurance is a type of term life insurance that is intended to pay off your mortgage in case of death, disability, involuntary unemployment or accident and illnesses. To put it simply, you buy a policy for a set period of time, make monthly payments, and if worst comes to worst while the policy is active, your designated beneficiary receives funds to pay off your mortgage. This coverage is designed to ensure that your family can stay in their home if you are unable to make mortgage payments.
Mortgages are one of the biggest responsibilities you’ll ever have. Your home could be at risk if you fall behind on your mortgage payment. MPI is sold as a way to protect your family and investment if the unthinkable happens.
The amount of coverage provided to a borrower will vary depending on the policy and the event. A typical policy might, for example state that:
- If the borrower dies, the loan can be paid off with up to $1,000,000. Any money left over will be given to the borrower’s estate to be used as they see fit.
- If a borrower is unable to work due to illness or injury, the lender will pay up to $7,500 per month to cover repayments (this may only be up to 30 days).
- If a borrower becomes unemployed, the lender will pay up to $7,500 per month to cover repayments (this may only be up to 90 days).
What are the benefits of MPI?
Many homeowners have found MPI to be beneficial. MPI has the advantage of guaranteed acceptance. This means that homeowners are not required to take a health exam in order to meet underwriting requirements for death or disability benefits. This may be the only type of insurance available to people with health problems.
Furthermore, death benefits with MPI are paid directly to the lender in the event of the death of the owner or owners. This feature may provide owners with peace of mind if they are concerned that their loved ones will be unable to handle their new financial obligations due to age, disability, or other issues.
How does MPI differ from Lenders’ Mortgage Insurance?
Mortgage Protection Insurance is frequently confused with Lenders’ Mortgage Insurance. Mortgage Protection Insurance protects borrowers by covering mortgage payments in the event of unforeseen events such as unemployment, injury, illness, or death. On the other hand, Lenders’ Mortgage Insurance, also known as LMI, is insurance that protects the lender rather than you. Typically, it is a one-time payment made by the borrower at the time of loan settlement. LMI is typically paid at the loan settlement and is usually added onto the loan amount.
Lenders Mortgage Insurance, like Mortgage Protection Insurance, is determined by a number of factors.
- The amount of your home loan
- The type of loan (owner occupier or investor)
- The amount of your deposit
- Your current employment situation
So, what’s the problem with MPI?
Mortgage Protection Insurance often falls into the category of ‘junk insurance’. This is because the claims ratios on home loan insurance is often very low. This means that the insurer may not make out your claim. This is particularly stressful if you are experiencing a tough time or the unimaginable has happened.
For example, if a homeowner has not been required to take a health assessment for approval to take out the insurance, the insurer may not payout if you make a claim as a result of your existing health condition.
When it comes to homeowners with health conditions that could affect their long-term well-being, employees in high-risk jobs, or young people who have trouble getting approved for life insurance, whether to buy mortgage protection insurance depends largely on your personal situation.
For many, the insurance is unsuitable to what their family needs.
Am I eligible for a refund?
There are many reasons why you may be eligible for a refund.
- It might be worthless to you. For example, depending on your employment contract at the time you purchased the policy, it may not cover you.
- Premiums are high. Premiums can be expensive as mortgages are sold for decades.
- Payments might not cover the whole mortgage. For example, mortgage protection may only cover you for a brief period. That means, that there will still be a substantial amount left to pay on your mortgage.
- A sneaky sales process. A salesperson will sometimes add mortgage protection onto a home loan without explaining what insurance is, or without you knowing.
If you have been sold mortgage protection insurance, you may be eligible for a refund.
Claimo can help establish your claim. We work on a no win no fee basis, meaning that if we don’t get your insurance refund, you don’t have to pay.