Your Next Big Move? Buying a Home!
Buying a home for the first time is an exciting life event with great expectations. If you just started the process of purchasing a house – whether this is your first home to be used as a springboard or for the one that will last for decades – this is an undertaking you will remember forever.
There are many benefits to buying a home. A house can be used as an investment, to gain independence, as well as providing a space in which you and your family can feel safe and comfortable. In addition, you will be generating an asset for your loved ones, which means that you must not only take care of the property, but also take care of the future of your home if you are no longer around.
So, the bank approved the loan, you bought the insurance on your new house – hurricane, flood, earthquake, Godzilla, everything! – and you have a steady income. You are young and know you'll be around 58 by the time you finish paying off the loan. What could go wrong?
Some things worth considering to keep your family protected
Financial security is not something to overlook, especially if it gives you the peace of mind that you will be able to cover fundamental parts of your family’s lifestyle.
Life Insurance
In short, life insurance exists to help protect your loved ones in case of your death. It can cover virtually any living expense, including housing loans. The most common mortgage term is 30 years, but depending on your stage in life, you may have already paid a portion. For this reason, you should consider what type of life insurance is right for you and your family.
Let’s start with term life insurance. It offers protection from 10 to 30 years and pays a lump sum if you pass away during that time. It typically provides the most amount of the coverage for the lowest initial premium, and offers add-ons that can be purchased to customize your coverage. There is usually a maximum age above which coverage will not be offered or at which it cannot be renewed. It’s important to note that these policy premiums are generally less expensive and increase in age bands every five years.
The other type is Whole life insurance, which provides lifelong coverage. It offers a fixed death benefit with the cash value component growing at a guaranteed rate of return. Many of these policies pay out dividends that can be used to reduce premium payments or add to your cash value. Whole life premiums are more expensive than Term life but the policy can last your whole life.
Speaking of which, do you need liquidity for your new home?
Yes, so far we’ve been explaining the risks of leaving loved ones burdened with debt, but there are other positives that we can take advantage of by having life insurance. It can be used as a liquid asset for your property—at some point of its maturity—for renewals, repairs, down payment, closing costs, etc.
Although it is not mandatory to have life insurance to apply for a home loan, it is common sense to discuss the different options to cover the liabilities of the mortgage. Having life insurance could bring you closer to the bank saying yes. During their evaluations, banks give certain priority to borrowers who have this type of insurance because these policies are considered liquid assets.
This means almost immediate access to cash in case you fall behind on payments. You could easily borrow from your policy and use the funds to catch up on your mortgage. It's like giving the bank a safety net when deciding to grant your loan.
Possible cons
While borrowing from your life insurance policy can be appealing, there can be hidden costs and tax implications, and any money you take out will be deducted from the death benefit your beneficiaries ultimately receive. Be sure to ask your insurance agent or financial advisor before making any decisions.
Disability Insurance
Let’s start with term life insurance. It offers protection from 10 to 30 years and pays a lump sum if you pass away during that time. It typically provides the most amount of the coverage for the lowest initial premium, and offers add-ons that can be purchased to customize your coverage. There is usually a maximum age above which coverage will not be offered or at which it cannot be renewed. It’s important to note that these policy premiums are generally less expensive and increase in age bands every five years.
What if you need to make accommodations to the house because of your new condition? As the benefits are paid directly to you, to use as you see fit, this type of insurance can help with the pain of making renovations in your space to help you continue with your lifestyle.
Buying a home is much more than a financial decision. It is the place you spend the majority of your time, your shelter where you build relationships with family and friends. This is why thinking about the impact life insurance could play is crucial.
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