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It's almost always a good decision to buy some form of life insurance, be it term life or whole life, but one of the main reasons that a lot of people buy life insurance is directly related to their also buying a new home.
Many do not realize how closely intertwined life insurance policies are with mortgages in the US market. Here are the basics you need to know about it.
Do I Need Life Insurance If I Buy A Mortgage?
When you go to sign for your mortgage on your new home, chances are someone is going to suggest to you that you might want to buy a life insurance policy as well. You might even get the impression that it's required the way some mortgage brokers talk - it's not, but it's a very good idea. Here's why.
What would happen to your family if you were to suddenly be absent? Would the loss of your income mean that your spouse could no longer make the mortgage payments and soon have to relocate to a less expensive residence? For many, the answer is "probably".
Thus, not only would your family struggle financially in your absence, but all the efforts you made while alive to provide your family a good home could come to nothing as soon as you pass away. Buying term life insurance that covers you for the amount you owe on your mortgage is a common solution to this problem. Normally, you set the policy up so that the benefit and the premiums decrease over the years until they reach zero just when your mortgage is paid off.
What About Mortgage Payment Insurance?
Although your lender will likely require you to buy homeowners insurance to qualify for the mortgage, you do not have to buy mortgage payment insurance. This type of insurance will pay for your mortgage payments for a period of time (usually up to 12 months) if you can no longer make the payments due to things like death, a serious debilitating health condition, or unemployment.
Mortgage payment insurance is a nice thing to have, but it cannot really take the place of a life insurance policy that is timed to expire when your mortgage does - unless you are within one year of paying your mortgage off in full.
Mortgage Life Insurance
Instead of getting a regular life insurance policy except you time it based on your mortgage payments, there is also the option of what's called "mortgage life insurance".
This form of insurance will cover your mortgage not only in the event of your death but also if you suffer from a disability or life altering disease that makes it impossible for you to make your mortgage payments any longer. Thus, this type of policy differs a little bit from other life insurance policies in that it's not 100% strictly "life" insurance but wanders into the disability arena as well. As such, you can expect it to cost a bit more but do more too.
Oftentimes, mortgage life insurance is offered when you go to sign a mortgage and you have to sign a waiver to opt out of it. Be aware you can buy it from other companies than what your mortgage company is suggesting. To learn more, or for a free quote, contact Summerlin Benefits Consulting today!