If I’m buying a house, do I need life insurance coverage?

Depending on the lender, some mortgages may require you to have mortgage life insurance, but you are not required to have traditional whole or term life insurance policies. For the homeowner, financial security for the family could depend on having a comprehensive life insurance plan, paying off the home or other long term obligations if the insured person dies. But such policies are not mandatory, and the amount of insurance needed will vary from person to person.

Before you consider the types of insurance which might affect your home purchase, think of how insurance might affect your ability to buy the home. Life insurance is meant to generate a payout when you die, so having one or more policies reflects positively on your financial responsibility. It is not a requirement of buying a home, but it could play a role in determining your rates.

Mortgage life insurance is a special type of life insurance designed to pay off the mortgage of a home when the insured party dies. This type of policy is sometimes required by the lender, and may be bundled into the mortgage itself. Mortgage life policies generally pay directly to the lender or mortgage company and may have a decreasing premium based on the deceasing value of the mortgage.

For the homeowner, a term life policy is usually a better choice. By setting up a term life policy for the amount of the mortgage, your family is not only guaranteed the ability to pay off the mortgage if you die, there will also be other money available to reduce the financial burden of carrying on without you. Even if a mortgage life policy is part of your mortgage, the term life policy offers more to your family, at only a little more cost.

A permanent life insurance policy would have advantages over both mortgage and term life policies. With a permanent life policy, the coverage would last until you died, rather than the policy ending after a specified number of years. And many permanent life insurance policies also have financial tools built into them which benefit the policy holder while they are still living.