Short answer: PMI (private mortgage insurance) protects your lender if you stop making payments, and it's often required when your down payment is under 20%. Mortgage protection life insurance protects your family by paying a benefit if you pass away. They do completely different jobs, and having PMI does nothing for your family.
PMI vs. mortgage protection at a glance
| PMI | Mortgage protection | |
|---|---|---|
| Who it protects | Your lender | Your family |
| When it pays | If you default on the loan | If you pass away during the term |
| Who receives money | The lender | Your beneficiary |
| Required? | Often, with less than 20% down on a conventional loan | No, optional |
| Ends when | Typically once you reach enough equity | At the end of the term you choose |
What PMI is
PMI lowers the lender's risk when you put down less than 20% on a conventional loan. You pay for it, but if something goes wrong, the lender is the one protected. FHA loans have their own mortgage insurance premium (MIP) that works similarly.
What mortgage protection is
Mortgage protection is life insurance sized to your mortgage. If you die during the term, the benefit goes to your family. They can pay off the house, keep making payments, or use it for other needs. Read what mortgage protection insurance is.
What about homeowners insurance?
Homeowners insurance covers damage to the house and your belongings, plus liability. It doesn't pay your mortgage if you die. That's the gap mortgage protection fills.
Do you need both?
If your lender requires PMI, you'll have it regardless. Mortgage protection is the part that protects the people living in the home. Most families with dependents and a mortgage benefit from having it.
Frequently asked questions
Does PMI pay off my mortgage if I die?
No. PMI only protects the lender if the loan defaults. It doesn't pay a benefit to your family.
Can I cancel PMI?
On many conventional loans, PMI can be removed once you reach enough equity. Check with your lender for your loan's rules.
Is mortgage protection required by lenders?
No. Mortgage protection life insurance is optional.
This guide is general educational information, not a quote, tax, legal, or financial advice. Coverage, features, and availability vary by carrier and state and are subject to underwriting.
