Can you use life insurance to pay off a mortgage? Yes, it’s quite common. In fact, the amount left on your mortgage should be included when calculating how much life insurance you need.
Home ownership is the American Dream. It symbolizes safety and security, but more importantly, it’s where you grow a family and make priceless memories for decades to come.
No one likes to think about death, but if your loved ones depend on your income to keep up with house payments, you need life insurance.
Table of Contents
- How Does Life Insurance Work?
- How Life Insurance Protects Homeowners
- How Much Life Insurance Coverage Do I Need?
How Does Life Insurance Work?
Life insurance is a contract between three parties:
- The policyowner pays monthly premiums and has complete control over the policy, including beneficiary changes. In addition, this party can also either be the insured or the beneficiary.
- The insured is the person covered by the policy. The policy is priced based on their health and lifestyle risk factors. If they die while the policy is active, the beneficiary can claim the death benefit.
- The beneficiary receives the death benefit when the insured passes away. They are the only ones qualified to claim the death benefit, but they must be listed on the policy.
A policy’s death benefit (or coverage amount) payout that the beneficiaries receive when the insured dies. Its primary function is to reduce economic burdens for the loved ones left behind.
How Life Insurance Protects Homeowners
Lots of people need life insurance. It serves as the financial safety net to ensure your loved ones are taken care of no matter what. However, it’s particularly important for homeowners. To buy a house, most of us take out a mortgage for the upfront cost and then spend decades repaying that loan with interest.
If you pass away unexpectedly, can your loved ones afford those payments without your income?
Whether you live alone, with your partner, or have huge a family, life insurance benefits all homeowners by:
- Preserving your home as a cherished asset rather than a financial liability
- Safeguarding your loved ones from financial turmoil
- Providing stable and secure housing for loved ones
Couples
Whether you’re married or not, if you’re in a committed partnership and have a mortgage, life insurance is essential.
If you pass away, your partner might struggle to manage the mortgage payments alone and ultimately lose the house.
To secure their living situation and provide financial stability in a time of loss, your policy’s death benefit should cover:
- Remaining mortgage payments
- Funeral expenses
- Income replacement
Your term length (the amount of time you have coverage for) should last as long as your mortgage.
You apply for $250,000 of life insurance coverage with a 30-year term length. This would cover the house payments and enable your spouse to not have to worry about funeral costs. An estimated cost for this term insurance policy is about $24 per month. Peace of mind at a small cost.
» Compare: Term life insurance quotes
Families
Generally, if you have a family and a mortgage, living on one income isn’t feasible. In the event of your untimely death, what would happen to your loved ones? How would they survive financially? Would they lose their home?
Get life insurance coverage to provide stable housing and economic security for your loved ones no matter what happens.
When calculating how much life insurance you need, include the following:
- Income replacement
- Mortgage
- Childcare and education costs
- Debt repayment
- Final expenses
If your budget is limited right now, some life insurance is better than none. Term life insurance is affordable and can be adjusted to fit your circumstances.
Individuals
If someone co-signed on your mortgage, they’ll inherit your debt if you die before it’s paid.
They did you a favor, return the kindness by getting life insurance to cover your mortgage.
Because you do not have any dependents relying on your income, a policy that just covers the mortgage may be adequate
However, if you have other co-signed loans, like student debt, factor those into your total coverage amount.
The younger and healthier you are, the more inexpensive life insurance is. Waiting too long may bring high premium costs or you could even become uninsurable.
Couldn’t My Family Just Use My Savings?
Life insurance payouts are meant to provide financial assistance right away. Even if you have a big savings account or trust fund, these assets may get tied up in probate for a while, which leaves your family hanging.
Your policy’s death benefit passes to your family untouched by creditors, and tax-free. The payout can also help cover their expenses, debt, and provide income replacement.
How Much Life Insurance Coverage Do I Need?
This depends on your needs and financial goals. It is wise to include the following when determining how much coverage you wish to purchase:
- Household debt: Include consumer debt like credit cards as well as your mortgage.
- Household expenses: This can include anything from monthly living expenses such as groceries to childcare costs.
- Financial goals: Include estimates of contributions towards major expenses such as college tuition and retirement savings.
Life Insurance Options
Life insurance policies fall into one of two categories: term and permanent.
Permanent life insurance lasts your entire life and can include unique exclusive features like:
- Cash value growth
- Dividend earnings
- Flexible premiums
- Adjustable death benefits
Because of these specialized features, permanent coverage options are typically expensive.
Term life insurance is the most straightforward and affordable coverage option. This basic option has benefits like:
- Fixed rates — even if your health changes
- Death benefits are tax-free
- Options to renew or convert before the policy expires
For most people, term life insurance is the best option due to its affordability. However, when buying term life insurance, ask your agent if it has a term conversion option. If your needs change and you decide that permanent life insurance is needed, you can convert your term policy.
Apply for Term Life Insurance to Protect What Matters Today
Whatever situation you’re in, whether you’re single or have a family looking up to you, work with an insurance broker to help you protect your loved ones and get term life for homeowners. Compare term life insurance quotes quickly and easily. No contact information required to see quotes.
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