Life insurance is regularly purchased to make sure loved ones will be financially cared for in the event of an unexpected passing. It also can be used to protect expensive assets, especially if those assets would become a financial burden to loved ones or would have to be liquidated in order to pay off outstanding debts.
For these reasons, anyone who is purchasing a new home should also have a life insurance policy to help protect their family's financial well-being.
What Life Insurance Does for a Mortgaged HomeHomeowners should understand the role life insurance plays in protecting a home, especially since this is a key factor in identifying the most suitable life insurance coverage. A policy's death benefits can be used to pay off outstanding debts so that a house doesn't need to be sold to pay off these debts. Death benefits can also be used to pay off a mortgage so that beneficiaries - who might have to cope with a greatly reduced household income - don't have to worry about this major expense.
Selecting the Coverage and AmountSeveral factors influence the coverage of life insurance needed, one being the outstanding balance of a mortgage. It is important to purchase a life insurance policy that's coverage is equivalent to a mortgage's outstanding balance. For example, a homeowner who has purchased a $240,000 house and put a down payment of 20% would likely search for a policy with a minimum of $200,000.
The policy should last the same duration of the mortgage or at least until the outstanding balance is substantially reduced. This leads to a term life insurance policy which provides coverage for a set amount of time (term). Whole life policies are unnecessary in these situations because unending coverage and retirement investments aren't needed, especially since these policies tend to be more expensive than term policies.
With most mortgages lasting 15 to 30 years, 15 and 30 year term policies are attractive. Homeowners who only want coverage until their mortgage is reduced might consider a 10 or 20 year term policy.