Home purchases require so many things to consider. It is easy to get lost in the fray.
One thing that often gets overlooked is mortgage insurance (a.k.a. life insurance).
The average person’s debt when buying a home is typically the largest of their lifetime, yet few consider that debt to be a determinate of how much insurance they require.
So assuming that you would like that mortgage paid off if you should pass away suddenly, what is the first step?
You must first decide what type of policy you need. (Sorry, this is the confusing part). Do you buy an IUL, whole life, VUL, term, or some variation of these? Most people should only buy a term policy to cover their debts. Others should buy a policy for income replacement. Income replacement is usually the most cost-effective way to receive a death benefit for your loved ones.
What is term life insurance?
Term insurance means that you pay a premium for a set number of years (A Term) and, should you die in that time frame, your beneficiary will receive a lump sum of cash tax-free. Referring back to the original home-buying scenario, for most borrowers, it would make sense to purchase a term policy to match the duration of their mortgage and cover at a minimum, at least half of the entire loan amount. The term life benefit can ideally pay off the loan should one person pass (and likely have some leftover if there were built-up equity).
What happens if we outlive the term of our life insurance policy?
Then you both should be thrilled you’re still alive!
Seriously though, there are other insurance options like a return of premium term policy that you can choose to purchase. Be aware that they are much more costly upfront but will return what you have paid at the end of term. Most term policies have some conversion to whole life at the end of term, which can be extremely valuable should you get diagnosed with a severe ailment in that period of time, making you uninsurable. The conversion option guarantees you a policy at your initial health rating should you choose to go that route.
Any questions??? We would love to customize a plan for you and your family, so feel free to reach out anytime or ask us some questions!