Congratulations Joey & Paul
I don't think this a black or white/right or wrong issue without considering many other things. For me, mortgage insurance works at $17.43/month, I declined the disability portion.
You have to consider what other coverage you have through your employer(s) or other lenders (credit cards/line of credit) and decide if you have enough insurance.
Your choice then is mortgage insurance or a term policy. A term policy may not be such a bargain depending on age, smoking and current health issues. Mortgage insurance is cheap by comparison but as you mentioned, it never goes down. At the front end of you mortgage you might benefit from it and maybe drop it after a ten years. There comes a time when your mortgage insurance premium will buy you more in term coverage than the balance of your mortage.
-Brian