Why getting a mortgage may mean it’s time to consider life insurance
April 14, 2022 • 3 min read
What we'll cover
How life insurance affects home buyers
How much life insurance you should get
An explanation of mortgage protection
Becoming a homeowner is a big step that comes with many new costs and financial responsibilities. In addition to your monthly mortgage payment, you’re now on the hook for home repairs and maintenance. And while this change may feel overwhelming, it’s a great time (while your finances are top of mind) to think about another important purchase — life insurance. Life Insurance is a smart way to help protect your new assets as you build your wealth through homeownership.
Is having life insurance when purchasing a home a good idea?
As you’ll quickly learn, being a homeowner comes with a lot of costs. Beyond your mortgage, you’ll be paying for homeowner’s insurance, property taxes, maintenance and utilities. Life insurance may help to ensure that in the event of your death, your loved ones will still be able to cover these expenses.
The money can be used to help your family continue to pay the mortgage and other associated costs in your absence. Even if you already had life insurance prior to buying a home, it might be wise to reevaluate your needs and make necessary adjustments when you take on the financial commitment of homeownership.
How much life insurance should I get when buying a home?
The size of the life insurance policy you should purchase depends on a number of factors, including your life stage, financial goals and budget. Think about the full picture of your family’s money needs should you pass away. You likely want to ensure that they will not lose the home or be forced to sell, making the costs of homeownership an important factor in determining the size of your policy.
What is mortgage protection?
Mortgage protection insurance (MPI) is a different type of policy separate from life insurance. An MPI policy pays off the rest of your mortgage if you die. MPI works similarly to life insurance in that you pay the insurer a premium on a monthly basis in exchange for a payout if a claim is made. The dollar amount or number of payments that the policy will cover can vary.
One way that mortgage protection insurance differs from life insurance is that the beneficiary in the case of MPI is your lender, whereas the beneficiary of your life insurance is a beneficiary that you choose, such as your family (your spouse, children). And while some life insurance policies can require a medical exam and reject applicants based on health conditions, MPI is usually available to all homeowners.
Do I need mortgage protection and life insurance?
In most cases, you may not need both. Life insurance provides your loved ones with flexibility in how they choose to spend the payout. If they have other more pressing expenses after you die, they can spend the money on those rather than the mortgage.
However, if you can’t qualify for life insurance, MPI may be a good option to ensure your family can keep your home after you die. MPI can also serve as a supplement to life insurance. If your beneficiaries pay off your mortgage with MPI, that leaves them with the entire payout from life insurance to use as they wish.
Can life insurance help pay off a mortgage?
While life insurance does not pay off a mortgage as directly, as mortgage protection insurance does, your beneficiaries can use the death benefit to make mortgage payments. So in that respect, yes life insurance could be used to pay off a mortgage. When the insured person dies and a claim is made, their beneficiaries receive payment and have the freedom to spend the money as they choose.
Secure your happy home
Becoming a homeowner is an exciting milestone. You’re putting down roots and making your house a home. Getting life insurance at this critical juncture is a smart choice to help protect your family’s future.
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