Do I Need Life Insurance If I Have a Mortgage?

Buying a home is one of the single biggest financial decisions you can make in your adult life. Chances are that your home will come with a hefty price tag, and may even require the help of a home mortgage loan in order to make the purchase. That loan allows you to pay off the purchase price of your property over a number of years or decades. But what happens if you die while you’re still paying off that mortgage loan? 

If you are currently paying down a home mortgage loan – and expect to be paying off that loan for the foreseeable future — buying life insurance can be an important move for you and your loved ones.

Why Life Insurance is Important When You Have a Mortgage

While some homeowners may pay off their loan sooner than others, the typical mortgage loan lasts for 30 years. That’s three long decades during which you and your estate will be tied to significant debt. 

Of course, the trade-off is that you get to live in and enjoy a home you love. But if you weren’t here tomorrow to make those mortgage payments, what would happen to your property and the loved ones you’d leave it to?

This is where life insurance comes in.

Your family could lose their home

If you live with your spouse, children, or other loved ones, they may wish to remain in the house even if you pass away. But if they are unable to make the mortgage payments on their own — not to mention paying property taxes, covering utilities, and covering unexpected repair costs — they might be forced to leave the home they know and love. 

With adequate life insurance coverage, you can account for those house-related expenses for a set number of years, or even allow your family to pay off the remaining mortgage balance. For this reason, many homeowners will buy term life coverage that lasts (at least) as long as their mortgage loan. 

Your beneficiaries could be forced to sell the asset

If you live alone, your home will pass to your designated beneficiaries as an asset of your estate. If those beneficiaries cannot make the loan payments right away, though, they may be forced to sell your home — and sometimes, in a desperate rush. 

This means that the home you loved and poured your money, time, and energy into could wind up being an unexpected burden on your heirs. 

Instead, consider buying enough life insurance coverage to pay off the loan and maintain the property, or at least cover the mortgage payments for a period of time. This gives your beneficiaries the time to make informed and well-planned choices.

Your loved ones don’t need another thing to worry about

While life insurance coverage can help cover the necessary and immediate expenses that your loved ones could incur, it can also be used to make their lives easier. 

Let’s say that your spouse and children could manage the mortgage payments on your home after your death. You may only owe a few more years on your mortgage loan anyway. Do you really need a life insurance policy?

For many people, the answer is yes. Your loved ones may not need the coverage, but life insurance benefits can ensure that they don’t have one more thing to worry about, especially during a difficult time in their lives. They can use this coverage to pay any number of expenses, make a big life change, plan for the future, or even just take a dream vacation in your honor. 

What to Buy if You Have a Mortgage

If you have a home mortgage loan, here are some ways you might consider using life insurance to protect those you love.

Term coverage until your mortgage is paid

Whether your home mortgage loan has 10 years of payments left or 30, buying a term life insurance policy for that same period (or longer) ensures that they are always protected from the burden of that loan. You can even stagger multiple policies (called laddering) to adjust this coverage as your mortgage debt changes. 

Permanent coverage to keep the property maintained

You may decide that a permanent life insurance policy makes more sense. This lifelong coverage can provide not only for the remaining mortgage balance on your home, but also future property taxes, maintenance costs, and more. 

Bottom Line

There are many reasons to buy a life insurance policy; being saddled with significant debt, such as a home mortgage loan, is a great one. Your coverage can protect those you love if you were to pass away, giving them the funds they’d need to pay on this home mortgage or cover any related costs.