About buying houses and insurance costs start adding up. Auto insurance, mortgage insurance, health insurance in some cases and life insurance. Many homeowners, especially new ones want to know if they really need both mortgage and life insurance. Here is some information to help you decide.
Determining Your Needs
As with most types of insurance, the coverage you get really depends on your needs. Standard mortgage insurance will cover the amount that is still owed on your home, so if something happens to you, your family won’t have to worry about it. Everyone can rest easy, knowing the mortgage is taken care of and they can still keep living in the house if you were no longer around. This is especially true if you’re the main income earner in the family.
If you feel that you need both the mortgage covered and regular life insurance coverage, you may opt for a standard term life insurance policy, because you can usually combine all the coverage under one policy.
If you purchase a home and you already have life insurance, you should take a good look at how your needs have changed with the new purchase, then adjust your coverage accordingly. You may need to add some coverage to protect the mortgage, leave it as is or change everything around altogether.
Argument For Only Life
Some homeowners and family members do make the argument for carrying only life insurance over basic mortgage insurance, for the following reason. When you have standard mortgage insurance, your mortgage is paid off in the case of your death. This works out great for your family, but if you happen to pass away when there is $20,000 left on your mortgage, that’s how much is paid out to satisfy the mortgage.
On the other hand, if you have a $250,000 life insurance policy, your beneficiaries are paid $250,000 no matter how much is left on that mortgage. If it’s $20,000, they can pay the rest of the mortgage and keep the remaining $230,000. Plus, that life insurance money is theirs to do with as they please. This type of mortgage insurance plan will usually cost less over time, but there’s obviously a good reason for that.
So, the answer to the question is “no” you don’t need both. However, it is important to sit down with your insurance provider and ask which one, or which combination is best for your situation. Explain the coverage you want, what you want to happen if you unexpectedly pass away, and your fears for your family. Your insurance provider will direct you to the solution that meets your needs.