Since Mr. Smith had recently changed jobs, the family found out they would not receive any life insurance. The only good news surprisingly came from the mortgage company. The couple had invested in PMI - Private Mortgage Insurance - when they purchased their new home just six months earlier. Because Mr. Smith was the sole person on the policy the insurance company would be paying off the mortgage.



PMI is an insurance policy on your mortgage. It is designed to protect the lender when the down payment is small. Many companies require the purchase of PMI when the down payment for the loan is less than 20%. Usually the cost is added into the monthly payment and the mortgage holder then passes on the PMI premium payment to the insurance company.

Although most PMI policies are purchased to protect the lender, there can be benefits to the borrower as well. When something tragic (like a death) interferes with the borrower's ability to pay then the PMI many actually kick in and pay off the mortgage for the borrower.

For people who have mortgages that do not require PMI, the investment in life insurance can offer the same protection (but will usually cost less).