Buying a home?
Just bought a home?
If you don’t have life insurance for mortgage protection, you may be doing yourself and your family a great service by considering it sooner than later. It’s one of the largest debts an American family will take on, so you have a great responsibility in protecting your family from the ramifications of no longer being here to pay the loan.
From the lending standpoint, it could also play a significant role in helping you to satisfy certain loan requirements.
If you have a mortgage or you’re considering buying soon, you may want to learn what life insurance can do for you.
Life Insurance For Mortgage Protection
There are plenty of reasons why someone might purchase life insurance. Life insurance for a new baby, for a business loan, as part of a legacy plan, or a number of others. Here are the most common:
- Income Replacement
- Final Expenses
- Estate Planning
Life insurance is a leverage tool to escape the long term outcome of an unexpected death. Obviously, covering the largest needs first are of highest importance. Your income is perhaps the largest thing you’ll need to protect in your lifetime, because your ability to earn an income for your family over a period of years is a big number. It’s not at all uncommon for a seven digit number in this category alone.
Your mortgage is the next largest obligation as it may well be the largest loan you’ll ever take out. The average American’s outstanding home loan is in the six digits. Would you be able to come up with this amount immediately if something were to happen to you?
Even if you break it down to a monthly payment, the average American’s monthly payment for their home is as much as a THIRD of their income at the time of purchase. If you lose half of an income because an income producing person in the household has passed, the mortgage doesn’t get cut in half, too. The mortgage would likely now exceed beyond half of the income produced. This would not be sustainable for most families.
How Much Of My Mortgage Needs Protected?
This is actually a matter of preference more than anything. One person may want to cover their entire mortgage and leave their family no mortgage debt. In this case, the insured would be doing much more than simply removing a monthly bill, but would actually be reducing the overall cost of the home because the future interest could be removed by making a balloon payment.
Another school of thought is to simply cover a certain number of years worth of payments. For example, if your mortgage was $1,000/month, leaving enough cash for ten years worth of mortgage payments would only be $60,000, although the home loan is probably closer to $150,000 considering today’s low interest rates.
Of course, after the ten year period the cash would have been used, and the repayment would need to resume.
How Long Do I Need To Extend Coverage?
This is also not a black and white answer.
One one hand, you could simply buy a life insurance policy for mortgage protection lasting exactly as long as the loan. As you pay down the loan over a few years, the remaining coverage is used as extra cash for the beneficiaries to use as needed. Therefore, a 30-year mortgage would fit a 30-year life insurance policy.
On the other hand, someone might argue it’s a waste of premium to continue paying the full amount if you don’t really need it. In this case, you could simply lower the death benefit amount each year to match the remaining principal amount, and this would, in effect, reduce your payment. You would still want to lock in a lock duration term product to ensure your coverage could last as long as needed.
Life Insurance For Lending Requirements
Some life insurance for mortgage protection is actually required. A lending institution may deem you less than reputable for your loan based on bad or minimal payment history, and could require a life insurance policy or another form of insurance to ensure they get their money back should something happen to you.
It’s not in the banks interest to acquire a home via repossession, because they are not in the home selling business. Although they may be able to recoup their cash, it is unlikely because the bank usually tries to liquidate the asset as quickly as possible by dropping the price at or below market.
If you are seeking a life insurance policy for mortgage protection, contact us today and we’ll be glad to walk you through our quick three step process. It’s simple, fast, and very affordable for most, as long as you can qualify based on your age and health. We are also here to help with more specific needs as well such as what is a declining term life insurance policy and is it best for my needs, just contact us and we can help!