Comprehensive Guide
Learn more in our Insurance Guide.
How it works
A mortgage protection comparison exposes the two structural quirks baked into lender-offered mortgage protection insurance. First, the benefit declines: the policy pays your remaining loan balance, which amortizes away every month, while your premium typically stays level — so by mid-loan you can be paying nearly the same price for half the coverage. Second, the money goes to the bank, not to your family: whatever the payout, it retires the loan and nothing else, leaving the household to fund groceries, childcare and everything else from other resources. Plain level term inverts both traits. The calculator amortizes your actual loan month by month, prices the declining MPP benefit in every year, and totals each side's lifetime premiums. It also stacks the deeper strategic point: your family's need was never just the house. Income replacement, children and daily living continue after the mortgage dies, so a term policy sized to the mortgage alone undersells what term can do — one policy can cover the loan plus the other needs simultaneously, usually for less than the bank-targeted product charges. Exceptions exist, mainly for buyers with health issues who are declined individually, since MPP is often sold with simplified underwriting. For everyone else, the numbers below usually speak plainly. Pricing varies by state, age and carrier.Formula
MPP benefit in year t = amortized balance at t | term benefit = original balance, constant | cost difference = MPP lifetime premiums - term lifetime premiums
Tips
- Ask whether the MPP premium stays level while the benefit declines — most do, and that mismatch is the core defect.
- Confirm the payout beneficiary: bank-assigned MPP pays the lender; term pays your family directly.
- Get the level-term quote before closing day — pressure peaks at the signing table.
- If health blocks individual underwriting, MPP's easier approval is a legitimate fallback, not a scam.
- Size any term policy to the mortgage PLUS your other needs; the house was never the whole obligation.
Frequently asked questions
Is mortgage protection insurance worth it?
Usually not, compared with level term: on typical quotes the bank-targeted policy costs two to three times as much over the loan while paying a shrinking benefit to the lender. It earns its keep mainly for buyers who cannot pass individual underwriting, since approval is far easier.
Why does my mortgage protection payout shrink every year?
Because the benefit equals your remaining loan balance, which amortizes monthly. Paying a level premium for a shrinking benefit means the effective cost per thousand of coverage rises relentlessly — by halfway through a typical loan you may pay nearly the same premium for half the original protection.
Who receives the money from mortgage protection insurance?
The lender. The payout retires the loan balance directly, so your family keeps the house but receives no cash for living costs. Level term pays your named beneficiaries, who can choose between clearing the mortgage and covering income, childcare or anything else the moment demands.
What is decreasing term insurance?
A term policy whose death benefit declines on a schedule, traditionally matching an amortizing mortgage, sold to you directly rather than through a lender. It is usually cheaper than level term and structurally similar to lender MPP — but it still pays your family, which is the decisive difference.
Do I have to buy my lender's mortgage protection offer?
No. Except for government-backed loans requiring flood or specific hazard insurance, mortgage life protection is optional, and refusing it cannot affect your loan approval. Lenders and their partners earn commissions on it, which is why the offer appears precisely when decision fatigue is highest.