- Homeowners insurance protects the house; life insurance can help protect your family financially if you die.
- Homeowners should factor in the mortgage and other housing costs when deciding how much life insurance they need.
- Term life insurance often fits well because it can match the length of a mortgage.
- Life insurance is more flexible than mortgage protection insurance because beneficiaries can use the payout as needed.
Consider Life Insurance When Buying a Home
Your home is likely the largest purchase you'll make in your life. Shortly before or soon after you’ve signed on the dotted line, you’ll want to create a plan to help financially protect your loved ones in the event that one spouse or partner passes away, leaving the other to shoulder the mortgage payments alone. For many families, that means thinking about life insurance for a home loan and how it could help cover more than just the mortgage.
Key Takeaways
Quick takeaway: Home insurance and life insurance serve different purposes. Homeowners insurance helps protect the house from covered property losses, while life insurance can help your loved ones handle mortgage payments and other household expenses if you die.
You may also hear about mortgage protection insurance, which is designed specifically to help pay off a mortgage balance.
An overview:
| Coverage type | What it helps protect | Who receives the benefit |
|---|---|---|
| Homeowners insurance | Your home and belongings after covered losses | You, based on covered damage and your policy terms |
| Life insurance | Your family’s financial stability if you die | Your chosen beneficiaries |
| Mortgage protection insurance | Your remaining mortgage balance | Your mortgage lender |
How much life insurance do homeowners need?
At first glance, the answer seems simple: The amount of life insurance you buy should be equal to the amount and length of your mortgage, right? Not quite.
“Ask yourself this question: ‘What do I owe on a monthly basis?’” says Todd Oster, Assistant Vice President at Amica Life. “Specifically, if you were gone, and your income wasn’t here anymore to help your family fulfill its obligations, what amount would it take to do that?”
As you calculate the housing portion of those obligations, think beyond your mortgage. The average mortgage payment is $2,064 on a 30-year fixed mortgage.¹ That adds up to $24,768 over a year. However, this figure leaves out several significant home-related expenses – like property taxes and insurance – that are also necessary in owning a home. You should also factor in such costs as homeowners association dues, utilities and maintenance. By doing an honest and thorough calculation, you can feel confident and comfortable with the final coverage figure you reach.
Look at the big picture. Exploring the amount of life insurance you need can help you think through income replacement, debts and long-term goals.
Why you should evaluate your existing life insurance coverage when you buy a new home
You may already have a life insurance policy in place as you purchase a new home. Perhaps you got this policy when you didn’t have any dependents or loans. Adding a mortgage to the amount of your liabilities can increase the amount of life insurance you may need. Not only could the amount of needed coverage change, but how long you need it for could also be impacted. If you have a 20-year term life policy but just got a 30-year mortgage, it could be in your best interest to make sure you secure coverage for the full life of your mortgage.
Do you have company life insurance? This could be the perfect time to review your options if part of your protection comes through an employer.
What are the different types of life insurance for homeowners?
There’s no specific life insurance type for homeowners. Most existing life insurance options can work well, depending on your overall needs. The most basic policy types are term life insurance and whole life insurance. A term life insurance policy has a level premium for a specific period, such as 10, 20 or 30 years. Coverage may continue after that level term period, but premiums may increase significantly at that point.
Whole life insurance, or permanent life, provides coverage for the insured person’s lifetime. These policies build cash value, which a policyholder can access under certain conditions.
For homeowners looking to specifically provide funds for their family to remain in their home, a term life insurance policy is a great match, because it covers you for a specific amount of time, usually from 10 to 30 years. Most mortgage loans range from 10 to 30 years as well. “You can absolutely tie the length of your term policy to the length of the mortgage,” Oster says. So, if you have a 30-year mortgage, purchase a 30-year term life insurance policy. Then you can reevaluate your needs if you pay off your mortgage early.
Weighing options? Compare term and whole life insurance to see how each type fits different goals.
What’s the difference between life insurance and mortgage protection insurance?
Mortgage protection insurance, or MPI, pays off your remaining mortgage if you were to die.² MPI pays the death benefit to your mortgage lender, compared to life insurance, which makes death benefit payments to your selected beneficiaries. This makes MPI a much more limited option than traditional life insurance. MPI is not to be confused with PMI (private mortgage insurance), which may be required by your lender if you make a down payment of 20% or less.²
That’s why some homeowners look at life insurance as a more flexible form of home insurance mortgage protection. Instead of paying only the lender, life insurance can give your beneficiaries options for how to use the money.
Do you need both life insurance and mortgage protection insurance?
You may not need both life insurance and mortgage protection insurance, depending on the amount of life insurance you have. If you have a life insurance policy and a mortgage, should you pass, your life insurance policy will provide funds to your dependents so they can continue to make mortgage payments. Life insurance will also allow your dependents to keep up with various other expenses such as homeowners insurance, property taxes, utilities and many more bills, whether they’re home-related or not. Life insurance can help your family stay in your home while also covering other expenses, whereas mortgage protection insurance will only eliminate the remaining mortgage payments.
For many households, the real comparison is home insurance and mortgage protection versus broader life insurance protection. Each serves a different role, and the right fit depends on how much financial flexibility your family may need.
Why is life insurance the best option?
A life insurance policy has a tremendous advantage over other mortgage protection products: flexibility. “Life insurance is tied to you, not your home,” Oster explains. “So if you buy another house or refinance your mortgage, you still have your life insurance policy.” Because your family members – not the mortgage company – are likely the beneficiaries of your life insurance policy, they can decide how best to use the payout to stay in the home that you worked so hard to get, or for other family expenses.
“It’s a proud and comforting moment for every family when they get their first home,” Oster says. “Life insurance ties the bow on that and helps make sure that your family can stay in that home forever.”
Get a life insurance quote today
FAQs about life insurance when buying a home
Yes. Life insurance for a home loan can help beneficiaries keep up with mortgage payments and other household costs if the insured person dies.
They serve different purposes. Home insurance and life insurance are not interchangeable — homeowners insurance helps protect the home from covered losses, while life insurance can help protect your family’s finances.
No. Mortgage protection insurance typically pays the lender, while life insurance usually pays your chosen beneficiaries.
Many homeowners look beyond the mortgage balance and include taxes, insurance, utilities, maintenance and other ongoing living costs when choosing a coverage amount.
When people say home insurance mortgage protection, they’re often thinking about ways to keep the home affordable after a death. Life insurance may offer more flexibility because beneficiaries can use the payout for the mortgage and other expenses.
The average monthly mortgage payment by state, city, and year, Business Insider, 2022.
What is mortgage protection insurance (MPI)?, Policygenius, 2022.
Your Policy, Policy Declarations or Amended Declarations in effect on the date of loss is the primary source of reference for your coverage, coverage limits and deductible amounts. This inclusion of non-Amica companies, products, services or statement herein (“Third-Party Content”) is for general informational purposes only and does not constitute a recommendation or endorsement by Amica Insurance. Policies, views, opinions or positions of Third-Party Content expressed herein are those of the authors and do not necessarily reflect the policies, views, opinions or positions of Amica Insurance. Amica Insurance makes no warranties, expressed or implied, as to the accuracy and reliability of Third-Party Content. This content may contain helpful tips, explanation and advice. Your use of this information is voluntary and may not be effective in every circumstance. Amica encourages you to use good judgment and put safety first. For more information on our editorial process and content standards, take a look at our editorial guidelines.
ALIC07725 Mar-27