Protecting your property can feel like an overwhelming task. How can you make sure everything inside and outside your home is covered if an accident happens or a severe storm hits your neighborhood? What kind of insurance is right for appliances that break or fail after the warranty ends? And how can you ensure your family can pay the mortgage if something were to happen to you?
Good news! We have you covered. In this blog, we discuss the different protections mortgage protection insurance and home warranties offer beyond home insurance. We also compare the pros and cons of what each offers to make it easier to decide what’s best for your needs and goals.
Mortgage protection insurance
Mortgage protection insurance (MPI) is a type of life insurance designed to pay off your mortgage if you were to pass away. Some policies also cover mortgage payments (usually for a limited period of time) if you become disabled.
If you’re about to become a homeowner, you may be wondering how mortgage protection insurance and home insurance differ. Here are the basics:
- MPI focuses on assisting your family with your mortgage if you pass away or become temporarily disabled.
- Home insurance focuses on payments for unexpected weather events, a fire that causes loss or damage to your home or other covered losses.
Both MPI and home insurance offer peace of mind for unexpected events. Keep reading to learn if MPI is the right choice for your needs.
What’s good about MPI?
- Guaranteed approval. Even if you’re in poor health or work in a dangerous profession, there is guaranteed approval with no medical exams or lab tests.
- No guesswork. The check goes straight to the lender for the exact mortgage balance, so there’ll always be enough and your family won’t have to handle the money.
- Disability protection. Some MPI policies make mortgage payments (usually for a limited time) if you become disabled or lose your job.
What’s not so good about MPI?
- Lack of flexibility. MPI gives beneficiaries no choice. The insurance pays off the mortgage — nothing else. This means your family can’t use the money for anything else.
- Higher cost. MPI typically costs more than term life insurance, especially for healthy, responsible adults. And some policies don’t guarantee the price will remain the same over the term of coverage.
- Shrinking coverage. As your mortgage balance declines, the policy’s payout declines with it. That means you’ll end up paying the same cost for less coverage over time.
- More restrictive age limits. MPI policies often have more restrictive issue ages than term life. For example, some insurers won’t issue a 30-year MPI policy to anyone over age 45.
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Should you get term life insurance instead of MPI?
To those who qualify, term life insurance could be a helpful alternative to mortgage protection insurance. Term life is designed to pay a benefit to the person(s) or organization(s) you designate if death occurs during a specified period of time. The benefit can be used to pay the mortgage as well as other expenses.
For term life insurance, you pick the benefit amount and the time period. The price and benefit amount generally stay the same for the entire term. It could be a flexible and affordable option for those who don’t need MPI.
Home warranty
A home warranty is a contract for a yearly service agreement that can help repair or replace components, appliances and other systems within your home if they fail due to normal wear and tear. While it might sound a lot like home insurance coverage, here’s how the two differ:
A home warranty offers
- Payment for failed appliances and systems, such as a newer washing machine failing just after the product warranty expires. Electrical, ductwork, heating, cooling, interior plumbing, water heaters, dishwashers and refrigerators are just some of the systems and appliances that are usually covered.
A home insurance policy offers
- Payment for damages or loss caused by a covered peril, such as fire or weather damage. Think of coverage for unexpected events when you think of home insurance.
What’s good about home warranties?
- Coverage from one source. You don’t need multiple warranties to protect different appliances around your home. If your basement water heater fails and the kitchen refrigerator dies, both will be covered by the warranty if they were in good condition when you purchased the home warranty.
- Customizable coverage. Let’s say you want to buy an upright freezer to store extra food in your garage or basement. Typically, a home warranty will only cover your refrigerator and freezer in the kitchen. However, you can customize your protection or select a premium option to cover extra appliances, like the upright freezer.
- Peace of mind for home costs. As long as your appliances are in good working condition at the time you purchase (or renew) and they are listed in the home warranty plan, you can save hundreds or thousands of dollars on replacement costs.
What’s not so good about home warranties?
- Limited timeframe. A home warranty typically only lasts for one year and needs to be renewed. In most cases, your plan can be reinstated. But there is a possibility your coverage options may vary year-to-year, so it’s crucial to pay close attention to all the details.
- Possible restrictions on coverage. Some appliance coverage will have a price cap and other appliances will not be covered at all, depending on your selections. Read your home warranty Declaration Page carefully to understand exactly what is and isn’t covered.
- Trade call fees and deductibles. You will likely pay out-of-pocket costs to receive the full extent of the home warranty coverage. Many plans have deductibles, and some plans have trade call fees. A trade call fee is a small fee for a service provider to diagnose an issue at your home.
The bottom line
If you own your home free and clear, MPI could be a waste of money. However, it can be a safety net if you become ill, temporarily disabled or pass unexpectedly. Term life insurance is an alternative to MPI if you qualify.
Home warranties offer peace of mind when your manufacturer’s warranty runs out for your new home or new appliances. However, if you can pay to repair or replace systems yourself, you don’t need to pay for a home warranty.
Home insurance is a starting point, but MPI and home warranties each offer quality coverage for different circumstances.
Learn more
A Grange Independent Agent can help you choose the right type of insurance to fit your needs and budget. Find an agent near you today.
References
HWA Home Warranty
Investopedia
Forbes
Cornell Law School
U.S. News and World Report
Coverages described herein may not be available in all states. Please contact a local independent Grange agent for complete details on coverages and discounts. If the policy coverage descriptions herein conflict with the language in the policy, the language in the policy applies. The material provided above is for informational, educational, or suggestion purposes and does not imply coverage. WE RESERVE THE RIGHT TO REFUSE TO QUOTE ANY INDIVIDUAL PREMIUM RATE FOR THE INSURANCE HEREIN ADVERTISED. Grange Insurance policies are underwritten by Grange Insurance Company, Trustgard Insurance Company, Grange Indemnity Insurance Company, Grange Insurance Company of Michigan and Grange Property & Casualty Insurance Company*. Not all companies are licensed in all states. *Not licensed in Pennsylvania.