Life Insurance Can Help You Buy a HomeLife Events
Buying a home for the first time?
You’re about to take a small step into a much greater world! A world of down payments and mortgages…but also a world of building equity and house warming presents!
There’s a lot to learn as a new homeowner, and you’ll get there. In fact, you’re probably saving for your down payment now, and reading all about Homeowners insurance to cover your new home. But did you know Life insurance can also contribute to that down payment, and even help cover you as a new homeowner?
Before the Sale
Borrowing from your Life insurance policy
First of all, some Life insurance policies let you borrow from your policy’s accumulated cash to pay for major expenses. That means, if you have a Permanent Life insurance policy, a part of the premium (the cash value) is set aside in an accumulation account.
You can use this cash to help with your down payment.1 Plus, it doesn’t need to go through a traditional lender, since you’re basically just borrowing from yourself! That potentially means no loan payment required and it's not taxable1 because it's usually not considered income by the IRS.
(If you don’t pay back the loan before your death, that amount plus any unpaid interest will be subtracted from your death benefit. So keep up with a regular loan payment schedule and repay the money as soon as you can so your family is able to take full advantage of your Life insurance policy upon your death.)
Cashing in a Life insurance policy
If you haven’t had the policy long enough to build much cash value, another potential source of funds may be in a policy taken out by your parents or grandparents. They might have taken out a Life insurance policy on you a long time ago and may be able to access the cash value to put towards a down payment.
The Life insurance policy you take out on yourself may then provide you with financial options down the road.
After the Sale
Covering the mortgage
You’ll probably have to get Homeowners insurance to cover expenses if your home gets damaged. But what if something happens to you, and your family can’t pay the mortgage?
Each year, more families lose their homes when the mortgage payer passes away than from foreclosure due to fire and other catastrophes. Life insurance is one way to help make sure that doesn’t happen to your loved ones. A suitable Life insurance policy can help your family stay afloat, make the mortgage payments, and maintain their lifestyle, even if you're not there to provide the income. Without it, a sudden loss of income could mean your spouse has to sell the house or deal with the foreclosure process.
Employer-provided Life insurance
If your employer provides a group Life insurance policy, it’s more than likely a Term insurance plan, which may not be convertible to Permanent Life insurance. Term Life insurance covers you for a specific period and only pays out if you die during that stretch of time. Permanent insurance means you’re insured for your entire life (provided you continue to fund the policy as required by the contract), and may allow you to borrow from it for major expenses.
Plus, you may lose your group insurance if you switch companies, so it's important to take out a policy independently of your employer.
1 Distributions from a life insurance policy in the character of partial surrenders up to basis (withdrawals) or policy loans will be tax-free, provided that the policy does not violate Modified Endowment Contract (MEC) guidelines and the policy does not lapse. MEC guidelines govern the relationship between premiums or cash value and death benefit. Policy lapse during the life of the insured can cause the owner a single taxable event for the policy cash value growth accessed in or before the year of lapse.
Life insurance, annuities and accidental death insurance issued by Farmers New World Life Insurance Company, 3003 77th Ave. SE, Mercer Island, WA 98040.