Buying a house is both a significant commitment and a substantial investment, so it’s crucial to protect yourself from unforeseen losses through insurance coverage. If you’re like most people, you probably have questions about the various insurance products available for homeowners. Let’s face it: if you’re not in the insurance industry, understanding the benefits of different insurance plans and what you need to effectively protect yourself can be confusing. In this blog post, we’ll explore two common insurance products—Mortgage Protection Insurance and Homeowners Coverage—to help clarify their purposes and benefits.
Mortgage Protection Insurance
If you’ve taken out a mortgage to buy your home, you might wonder if you need mortgage protection insurance. Don’t confuse this with private mortgage insurance (PMI). PMI is a product that protects your lender if you default on your loan and may be required if your down payment is 20% or less of the purchase price. PMI does little to protect the homeowner; it’s there to protect your mortgage lender.
Mortgage protection insurance, sometimes called MPI, is different. It can protect you as a homeowner if you are unable to make your mortgage payment because you lose your job, become disabled, or pass away. Simply put, MPI is there to protect you and your family if you cannot make your payments.
Different insurance companies offer various MPI products, but generally speaking, MPI designed to pay death benefits will send a check directly to your mortgage lender if you die. If you become disabled, your MPI insurer will make your mortgage payments for a defined period, though there may be a waiting period before those payments are received.
Typically, basic MPI policies only cover your principal and interest for your mortgage, so you may still be responsible for additional payments like homeowner’s insurance and property taxes maintained in an escrow account by your lender.
Homeowners Insurance
While MPI is generally optional, homeowners with mortgages are usually required to purchase a minimum amount of homeowners insurance.
Homeowners insurance protects your home from damage to the structure and its contents and shields you as a homeowner against legal liability if someone is injured on your property.
Some of the most important elements include:
- Property Damage Coverage: Protects against losses from fire, wind, hail, and more. Discuss with your insurance professional how much coverage you need for your home, garages, sheds, fences, and personal property.
- Additional Living Expenses Coverage: May cover expenses incurred if your home is uninhabitable for a period following a covered loss.
- Personal Liability Coverage: Protects you if someone is injured on your property and may cover damage you cause to someone else’s property.
- Medical Payments Coverage: Can cover medical expenses for someone injured at your home.
Understanding these insurance products and their benefits can help you make informed decisions about how to protect your most valuable investment—your home. By ensuring you have the right coverage, you can provide peace of mind and security for you and your family, knowing you are prepared for the unexpected.
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