Do You Need Life Insurance if You Have a Mortgage?

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Quick Answer

Your loved ones don’t inherit your mortgage debt when you die. But if someone else applied with you on the loan or you want your dependents to stay in the home after you die, having life insurance coverage is a good idea.

Be careful about the type of policy you choose, though. Do your research to get the most bang for your buck.

One of the top five reasons people own life insurance is to help pay off a mortgage, according to the Life Insurance Marketing and Research Association (LIMRA). In fact, more than half of the people LIMRA surveyed in its 2017 Insurance Barometer study bought a policy for that reason.

There are a few reasons why you might want to get life insurance to cover your mortgage. But it’s important to get the right kind of policy to avoid spending too much while still having adequate coverage.

3 Reasons You Need Life Insurance if You Have a Mortgage

Life insurance is meant to benefit your loved ones, so it’s important to consider their needs when determining whether you need coverage.

1. You want your dependents to remain in the home

Losing a loved one is a devastating experience on its own. If your dependents also have to move out because they can’t afford mortgage payments, it can feel like adding insult to injury.

Getting the right coverage won’t bring you back, but it can help alleviate some of your loved ones’ suffering.  

2. Your dependents may not be able to afford the payments

If your partner is a stay-at-home parent or you were the main breadwinner in the family, they may not have sufficient income to continue making mortgage payments.

So, having coverage to pay down the debt can make it easier for your loved ones to get by financially knowing they don’t have to worry about a big monthly debt payment.

3. You may want to provide more financial security

Even if your dependents can manage to continue making payments on the house, having enough coverage to pay off the debt could eliminate a major expense for them. As a result, they could use that cash to make better progress toward their financial goals.  

Think Twice About Mortgage Life Insurance Policies

If you’ve bought a house, you’ve probably received offers in the mail for mortgage life insurance. These policies function differently than a traditional level-term life policy. Instead, they’re decreasing term insurance policies, which keep the same monthly premiums but decrease your death benefit throughout the life the policy.  In addition, the beneficiary is often the financial institution, not your family, which eliminates your ability to make your own decision about your end-of-life finances.

The idea is that as your balance declines over time, you need less protection. But despite the fact that they provide less value than a traditional term life insurance policy, they can be more expensive.

For example, the Wisconsin Department of Financial Institutions found that a 40-year-old person in good health would pay $92 per year for a term life insurance policy, and $370 per year for mortgage life insurance.

The reason it’s so expensive is that mortgage life insurance policies are typically guaranteed issue, meaning that you don’t have to undergo a medical exam to qualify. By not knowing your medical history, the insurer takes on more risk and charges higher premiums to make up for it.

So, if you have medical issues and wouldn’t qualify for a low rate on term insurance, mortgage life insurance might be worth considering. But if not, it could be worth doing an exam.

One last thing to consider is that the policy only pays off your mortgage if you pass away. So, if your loved ones need coverage for other expenses, they’re out of luck.

Why You Should Consider Term Insurance

If you’re planning on having life insurance coverage specifically to pay off mortgage debt, consider term insurance. Not only can you get a long enough term to cover a 30-year mortgage, but the coverage is typically the cheapest you can buy.

Term life insurance can also be used for anything your dependents need, which can come in handy if they have more pressing expenses to cover before paying down the mortgage.

Plus, if you get a level-term policy, you’ll pay the same each month over the life of the policy, and your death benefit won’t go down.

Term life insurance may require a medical exam, though. So, if you have health issues, you might end up with a higher monthly premium than what you’d pay with a mortgage life insurance policy.

Deciding How Much You Need

There’s no hard-and-fast rule about how much life insurance you should have. It all depends on your preferences and your dependents’ needs.

For example, do you want enough coverage to pay off the mortgage in full with a one-time payment? Or would you prefer to provide a steady income that allows your loved ones to continue to make monthly payments?

Have a conversation with your partner and adult dependents to determine what they want and what you can afford.  

When You Don’t Need Life Insurance if You Have a Mortgage

If you have a mortgage, no one else is responsible for repaying the debt after you die, unless someone applied with you on the loan.

If you don’t leave any money for your loved ones to pay off the loan or at least continue making payments, the bank forecloses on the home and sells it to pay off the loan.

So, the only reasons you wouldn’t want life insurance coverage for your mortgage debt is if you don’t have any dependents to leave the home to or your dependents aren’t planning on staying in the home.

The Bottom Line

If you have a mortgage, it would be wise to consider getting some term life insurance to pay off the debt if you die. If you have health issues, though, also look into mortgage life insurance to see if you can get cheaper coverage.

LeapLife’s team of licensed life insurance representatives can help walk you through the process step by step and help you determine the type of coverage you need and how much.

Peace of mind starts at $14/month*

See Your Rate
*Sample quote is based on 35-year-old healthy male in California receiving a $250,000 10-year Term Life policy (Policy Form # I L1702) underwritten by Assurity Life Insurance Company.
ABOUT THE AUTHOR
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Ben Luthi is a freelance writer who covers insurance, credit cards, student loans, and other personal finance topics. His work has appeared in publications like USA Today, The Christian Science Monitor, Credit Karma, NerdWallet, Money, and more.

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