One of the worst things that could happen upon your death is putting your family into debt because you were not able to pay off your mortgage on time. Having an adequate life insurance policy will ensure that you pay off your home, no matter what happens.
There are several reasons why life insurance may be necessary when purchasing a home:
Private Mortgage Insurance Policy (PMI)
When you purchase a house with a down payment that is less than 20 percent of the purchase price of the home, the lender will require that you have a PMI. This policy protects the lender in case you default the loan for any apparent reason, including your death. Once you have paid the balance of the loan to below 78 percent of the purchase price, this type of loan is then unnecessary.
Better Rates on More Expensive Homes
If you agree to purchase or already have an existing mortgage life insurance policy, the lender may offer you a more expensive home at a better price that you would not otherwise get, based on your income and the down payment.
Burdens on Family Members
If you have a family that lives in the house with you, you may want to carry a policy that will cover the cost of the mortgage of the entire house. If you are the sole income earner, it may become difficult for your spouse to pay off the mortgage alone, especially if your spouse cares for the children. Without life insurance, the loss of your income can ultimately mean the loss of the house and everything invested in it.
Term Life Insurance and Paying Off the Mortgage
A term life insurance policy or mortgage life insurance policy can help you pay off the loan on the house. Savings and whole life policies, on the other hand, help survivors with other expenses. Term insurance offers protection for a set amount of time in life and can be stopped with no longer needed.
Every time you purchase a new home, you will want to make sure that your life insurance policy is up-to-date to meet your family's needs.