The Basics

• Mortgage protection insurance is a form of life insurance, insurance that pays a benefit when somebody dies. There are two kinds of life insurance: term and whole life. Whole life insurance accumulates cash value month by month and pays a benefit no matter when the insured dies. Term life accumulates no cash value and pays a benefit only if the insured dies within a set and agreed to period of time. Mortgage protection insurance is a term life product.
  
  

How it Works

• Mortgage protection insurance is an agreement between a policyholder (the person paying for the policy) and the insurance company. The policyholder agrees to pay the company a certain amount of money, usually in monthly installments. The insurance company agrees to pay a specific death benefit if the insured (the person covered by the policy, who may or may not be the policyholder) dies within a set period of time. This period is usually set to correspond with the term of the mortgage. For example, a 20-year mortgage would be paired with a 20-year term of insurance.
  
  

Flat vs Variable

• One decision when shopping for mortgage protection insurance is whether to buy a flat or variable death benefit. The flat benefit pays a single sum no matter when the insured dies. A variable benefit pays a decreasing amount with each passing year, an amount that approximately matches the amount owed on the mortgage. Flat benefits mean there is money left over as the mortgage is paid down. However, they are more expensive than decreasing benefit policies.
  
  

Who Needs It?

• According to financial guru Dave Ramsey, mortgage protection insurance is necessary only if the family can't afford their living expenses on a single salary. Since this situation describes most American families, mortgage protection insurance is often a good idea. However, if one or both parents is already covered by other life insurance, that insurance may mean the family can, in fact, afford living expenses on a single salary.
  
  

How to Get It

• In many cases, potential homeowners will be approached with an offer for mortgage protection insurance during the process of buying a home. This comes through partnerships between the mortgage broker or bank and an insurance agent. This can be easy and convenient. However, compare that offer against the company that carries your other insurance policies. "Multiple policy discounts" are a standard business practice, meaning your current carrier may well be able to beat the price offered by your mortgage broker's partner.