These two very different products are always confused and not knowing the difference could hurt you as a borrower. I will describe the differences below:
Don't confuse these two insurances because your mortgage loan broker or bank loan officer confuses them all the time and will tell you that you don't need it. Wrong!
Ok so you ask, "What's the difference?"
The answer is: Private Mortgage Insurance (PMI) is special insurance your bank/mortgage lender makes you buy, at your expense to protect THEIR interests. If your down-payment is less that 20% of the purchase price of your home the bank will want this in your loan agreement. Read this article: Consumer Protection Bureau, consumerfinance.gov.
What PMI does is this: If you default on your mortgage payments for any reason whatsoever, PMI pays off your loan to the bank HOWEVER this pays off what the bank is owed, BUT IT DOES NOT PAY OFF YOUR MORTGAGE OBLIGATION. YOU STILL OWE THE DEFAUTED AMOUNT TO THE BANK.
PMI pays the bank and because you still owe the mortgage debt, THE BANK WILL STILL FORECLOSE ON YOUR HOME.
The bank is the beneficiary on the PMI policy meaning that they are party that gets paid if you default because of a death, critical/chronic illness or disability.
Click here to read about Mortgage Protection Insurance. This is a policy that you and your Spouse own. You and your Spouse are beneficiaries to this policy so your Spouse gets the death benefit if you die or suffer a heart attack, stroke, cancer or chronic illness and are at risk for default on your loan. Mortgage Protection Insurance keeps you in your home.
This is why Private Mortgage Insurance is a Lie and why you need Mortgage Protection Insurance.