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MORTGAGE INSURANCE VS. MORTGAGE PROTECTION INSURANCE
Private mortgage insurance and mortgage protection insurance (also known as mortgage life insurance) are not the same thing. Mortgage life insurance is an insurance policy designed to pay off a policyholder's mortgage in the event of their death. Some borrowers might purchase a mortgage life insurance policy so their dependents can remain in the residence they have a mortgage loan for. What differentiates mortgage life insurance from traditional life insurance policies is that the death benefit is paid directly to the mortgage lender. Traditional life insurance policies pay the death benefit directly to the beneficiaries listed on a policy.
There are two types of mortgage life insurance: decreasing term and level term. Decreasing term policies pay out less as the the outstanding balance of a mortgage loan is paid off. The death benefit paid in level term policies does not change and is only beneficial to borrowers making interest-only payments toward the home they have a mortgage for. Most consumers forego mortgage life insurance policies altogether and choose to either purchase a traditional term life insurance policy, which is comparable in price and effectively serves the same purpose while providing more financial flexibility to beneficiaries.
THE MORTGAGE INSURANCE MARKET
Mortgage insurance is a $1.79 billion portion of the insurance industry in the U.S. but compared to other lines of insurance, such as auto or homeowners insurance, there are not many companies that offer the policy. MGIC and Radian are monolines that together accounted for more than than 44% of the U.S. market share for direct premiums written in 2014.
The mortgage insurance market was heavily impacted by the housing collapse and recession in 2008. According to the Federal Insurance Office’s 2015 annual report on the insurance industry, approximately 40% of mortgage insurance participants failed as a result of the crisis and in 2010, only 4.3% of all new mortgage loans were insured by mortgage insurance. Since then, the mortgage insurance market has rebounded. In 2014, market rebounded and 14.8% or $176 billion of all mortgage originations were covered by a mortgage insurance policy.
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