Mortgage insurance benefits are only ever paid directly to the lender. The family has no discretion or say in how the funds are paid, which is much different than life insurance that is paid to the family to then be paid as they see fit. Mortgage life insurance will have no financial impact on the family other than paying off the property and residence.
Even if you meet the requirements for cancellation of the PMI or private mortgage insurance if you are considered a high risk for defaulting, have missed payments or have liens against the property you may not be able to cancel your PMI coverage. Check with your state to see why cancellation of PMI may not be approved.