Welcome to your new home! Maybe the boxes aren’t totally unpacked yet, and that one spatula is missing, but you deserve congratulations for making the leap to home ownership. Whether you’re in a starter house or an abode meant to last decades, you own it.
As with any large-scale purchase, you’ll want to make sure your home is insured, but it’s also important to insure your well-being to keep that home if the worst happens. Homeowners insurance will cover damages to the physical property, but how will you make sure the mortgage is paid off in a worst-case scenario? If you pass unexpectedly, will your beneficiary need to sell your hard-earned home to pay the bills?
It’s worth looking into life insurance to keep your new property in the family.
What Is Life Insurance?
We’re going to talk about the two most common forms of life insurance: whole life and term life. Luckily, this is one of the few cases where the name truly tells you what each product involves. Whole life insurance is designed to last for your whole life. You’ll pay a premium each month, and if the worst happens, your beneficiary will receive funds based on how close you are to paying off the policy. With whole life insurance, your premium will remain fairly constant your entire life, affected only by government actions (taxes, inflation) but not the insurance provider.1
Whole life insurance policies also build up cash value, especially if you pay more than the premiums each month. Loans may be taken out against accrued cash value; these loans can be used in a variety of manners including unexpected issues that may arise in your home. Be sure, though, to repay the loan or replace the withdrawn funds, or the death benefit of your policy will go down.2
Term life insurance is, like whole life, just what it says on the tin: The policy lasts for a specified term, or period of time. When that term expires, the policy expires. Term life premiums are lower than those of whole life insurance, but the policy does not build up cash value, and any money you’ve spent on premiums is gone once the policy ends.3 You can, though, take out multiple term life policies, so you could take out a policy specific to the life of your mortgage separate from any other life insurance policies in hand, and rest assured your home ownership investment will be protected until both the mortgage and the insurance policy end. Be sure to communicate your plan for your term life insurance benefits to pay premiums with the appropriate parties (i.e., family members, or financial planners) when planning your future.
Categories: Life Insurance, Term Life Insurance, Whole Life Insurance