You’re all set on making that big purchase. And it’s most likely the biggest purchase you’ll ever make. We’re talking about buying that dream home. This means more than just providing a roof over your head or a shelter for your family. Buying a home is a reflection of your achievements and that dream lifestyle. This home is where you’ll start making new life memories. It is a place where you and your family will achieve that sense of security that you all deserve and long for.
Ensuring that security also entails making important steps which are related to buying a home. You will go through a lot of paperwork. And you need to have a good grasp of how much house you can afford. Apart from all that, you also need to do one thing to achieve the certainty of a healthy financial future. If you don’t have one yet, it would be a good idea to purchase a Life Insurance Policy before buying a home.
What Is Life Insurance And How Does It Work?
Life insurance is a contract or agreement between an insurance company or provider and a policy holder. Buying a policy means making monthly payments to a life insurance company. In return for the payments, the company gives the assurance of paying the allotted lump sum to the policyholder’s beneficiaries in the event of the policyholder’s death. Payouts are based on a fixed period of time in exchange for paid premiums.
You can also discuss and inquire about life insurance with a trusted financial advisor. This will help you understand how getting a policy can fit in your financial situation.
The Sooner You Buy, The Better
It is more beneficial if you get a policy as soon as you are financially capable. The earlier you buy, the better. Cost of a policy becomes more expensive each passing year, the older you get. Having a policy in place even before planning on buying a home is a good step towards good financial planning. This secures your finances and the finances of your loved ones ahead of time.
Life Insurance Comes At A Reasonable Price
There is a policy depending on different budgets. You can discuss the matter with your partner or family members. Together, you can decide on the type of coverage that would best suit your needs. There are a variety of plans available from the best life insurance providers. These companies can present rates that are within your means.
What Are The Different Types of Life Insurance?
Term Life Insurance
Term life is an affordable and temporary policy option when you have a tight financial budget. This type of insurance is less expensive than other types of insurance policies. If you have a lot of dependents plus a list of financial obligations, you can opt for this type of policy. It is up to you to decide the amount of insurance that you need.
The younger and healthier you are at the time of buying, the lower your premium payment. Available coverage can go for as low as $1 a day. This is applicable for non-smokers and those who do not have any pre-existing conditions. You need to note though that the premium increases as you get older – in a span of five, ten or twenty years.
This policy gives you an option to buy insurance coverage for a specific term, similar to the length of your mortgage. You can also arrange for automatic renewal of the policy at the end of the term. This type of insurance, however, does not accumulate cash value. Meaning, it does not earn dividends and only provides you with the agreed policy face value.
Permanent Life Insurance
Permanent life is similar to term life in terms of having a fixed insurance amount. But, unlike term life, permanent life insurance does not need to be renewed. Moreover, this type of insurance policy usually accumulates cash value. This can be paid out to the policyholder should the individual decide to end the policy.
This type of life insurance also appears to be a more cost-effective long term financial plan compared to term life. The premiums paid for permanent life are higher when you’re younger and become lower as you get older.
Universal Life Insurance
Universal life provides lifetime protection and is deemed to be much more flexible than permanent life insurance. The premiums, however, can either stay the same or have a yearly increase depending on the policy you avail.
The advantage of this type of policy is that you can make extra payments. Extra payments can be invested and in turn, accumulate tax-free. Policyholders can receive dividend payments depending on the product’s performance. However, you should also be aware of potential risks that come with the investment.
Whole Life Insurance
Whole life is a permanent coverage that only loses its validity if you decide to cancel the policy. It has fixed payments and lasts your entire lifetime. This type of insurance policy earns dividends. And it also allows you to build up cash value while the policy is in place. This is a good option for those who are looking to augment their savings and investments. The cash value can be there as an extra cushion or an emergency fund that you can tap any time when needed.
Mortgage Protection Insurance
Mortgage protection is otherwise known as accident, sickness, and unemployment insurance. It combines term life and critical illness insurance. This protects the beneficiaries from the financial challenges of death and serious illness in the family. The primary purpose of a mortgage protection policy is to cover mortgage payments. Those left behind will be provided for, in the event of the loss of the primary earner in the family.
Why Should You Get Life Insurance Before Buying A Home?
Getting a life insurance policy gives you peace of mind. It ensures that you or your loved ones are financially secure no matter what happens. There are indeed a lot of things to consider as a first-time home buyer. The primary reason for buying life insurance before buying a home is to make sure that all (if not most part) of your mortgage can be paid off even if untimely circumstances would occur. You need the confidence that you, your partner or family members would still be able to enjoy your home. Furthermore, you need the guarantee of being able to afford future mortgage payments.
The life insurance policy that you should get is also dependent on the kind of lifestyle you currently have. Now, you are already thinking of buying a home. So it is important for you to also take into account the monthly mortgage you would be paying in the future. A mortgage calculator can help you determine, more or less, how much you need to plan for.
How Does Life Insurance Work For Me When I’m a Homeowner?
In the event of the untimely death of the primary breadwinner, life insurance can help you and your loved ones pay off the mortgage (in full or in part). The money can also help cover maintenance repairs, property taxes, and utilities. The most important part there is that you or your loved ones can still enjoy living in your home.
Beyond mortgage payments, there will still be other future home-related expenditures such as repairs, maintenance, and renovations. Apart from affordability, selection of life insurance plans or decisions on the right amount of coverage depends also on the following considerations:
- How big your family is, as well as the age of the family members
- Your earning capability or the earning potential of your partner / spouse
- The kind of lifestyle that you would like maintained or continue to enjoy
- And of course, the term of your mortgage and interest rate
If you already have life insurance, it would be good to check if your current policy covers the additional debt of a home loan. If not, then it would be best to consider buying another policy to cover the mortgage. This is all about enabling those left behind with the financial capability to handle unpaid debts.
Reassurance As The Primary Benefit of Life Insurance For A Homeowner
Most households depend on two incomes to shoulder a list of living expenses. Your total expenses will be much higher if you plan to add mortgage payments to that list. If you and your spouse co-signed for a mortgage, either one of you may have the sole responsibility of repayment. Buying life insurance should be in your list of priorities before having the house transferred into your name.
Should anything happen to you or your partner/spouse, you would want the person left behind to be able to continue paying the mortgage. It would be heartbreaking for them to risk losing the house or be forced to sell. This might be a difficult conversation to have with a partner/spouse but one that is essential and necessary.
The tax-free lump sum that you can get from life insurance can be sufficient to pay off the mortgage balance. And with this, any expense, any debt, and mortgage will be the least of your worries if ever any tragedy occurs. The benefit of knowing that you or your family has financial protection in place is priceless. This also gives everyone freedom from worries and anxiety.