As new homeowners, you and your partner should both have a life insurance policy in place to cover your expenses beyond any current savings. With that in mind, there are several types of life insurance products that can meet your needs. For many new homeowners, the most affordable choices are mortgage life insurance or term life insurance. Below we will describe the benefits of each.
Mortgage Life Insurance
As its name suggests, mortgage life insurance is designed around your mortgage debt. Your policy payout, called a death benefit, is often payable directly to your mortgage company for the outstanding balance of the mortgage if you die while the policy is in force. Once your mortgage balance has been paid off, the policy typically terminates.
Your mortgage company is usually named as your beneficiary. As your mortgage balance goes down, the amount of the insurance policy goes down. It’s common for lenders to offer this coverage as part of a mortgage package.
Term Life Insurance
Term life insurance is a type of life insurance policy where you can select the amount of insurance coverage you need, the term or amount of time you need the coverage, and who you would like to receive the death benefit. You can customize the policy to your needs as a homeowner, but you don’t have to limit your coverage to just the amount of your mortgage.
Exactly how do you calculate the coverage you need? To recap, your mortgage usually isn't your only major financial obligation. You may have a young child and plans to grow your family. You may also have a car payment, student loans, a credit card balance, and other ongoing expenses.
These costs can all be covered with the death benefit of your term life policy if you have an active policy in force at the time of your death. You may choose a higher coverage amount to help your family live a comfortable life if you suddenly die.
Here’s an example: if your mortgage amount is $300,000 and you want to add $200,000 more coverage to provide for life’s necessities, you can easily apply for a higher amount of coverage.
You could choose a 30-year term policy for a 30-year mortgage. Or you could choose a 20-year policy if you choose a shorter mortgage length, like a 15-year mortgage. To get an idea of the costs involved, a 35-year-old female (non-smoking) in excellent health applying with Ethos, would have a monthly rate of $29/month for a coverage amount of $500,000. Her $29/month premium is guaranteed not to increase for the entire 20 years her coverage is in force.
Tips For Getting Started
Don’t procrastinate - life insurance becomes more expensive to buy as you get older. Rates have come down in recent years as medical science advances and health awareness improves, but as another birthday goes by, your rates will climb higher. Think about locking in your rate now.
Use budgeting software such as You Need a Budget (YNAB) or Mint to audit your expenses. You might be surprised to see where your money goes! You’re also likely to find that your mortgage is only one consideration when choosing a coverage amount.
Choose a term that meets your family’s needs. Even if you choose a 15-year mortgage, consider applying for a longer term to provide for your family through all or most of the years you expect to generate income.
Life insurance has many uses, but in its simplest form, a well-structured life insurance policy can provide sufficient income replacement if you have one at the time of your death.
A term life insurance policy can be a good value for you and your partner because you can choose the coverage amount, select your beneficiaries, and choose a term that’s customized to the length of your financial commitments.
If you’re interested in learning more about applying for life insurance with Ethos, you can get started by answering just a few questions to get a quote.