Here are some things to think about:
- A life insurance policy can help you provide a source of financial support for your beneficiaries in the event of your death.
- More than one type of life insurance policy might help you meet your goals.
- If you want your policy to help you financially support your beneficiaries, the amount and duration of your mortgage may be important factors in your choice of one type of life insurance coverage over another.
A: New and existing homeowners may benefit from having life insurance, but coverage needs depend on your circumstances. Ultimately, as a homeowner, your decision to get life insurance should be based on your financial objectives.
Using life insurance proceeds as a source of funds
Life insurance can be used to help provide support for loved ones in the event of the policyholder’s death. If you’re a homeowner with a mortgage, life insurance proceeds may help you provide your beneficiaries with funds they can choose to use toward mortgage payments or other financial obligations.
Unlike traditional mortgage protection insurance, a life insurance policy isn’t restricted to paying only the balance of your mortgage to the lender. In the event of your death, your beneficiaries can choose to use life insurance proceeds for expenses such as:
- A child’s college tuition
- Household bills
- Childcare, or
- Medical bills
And, unlike typical mortgage protection insurance, the amount of your life insurance policy’s death benefit does not decline with the balance of a specific mortgage. If you refinance your home, your original life insurance policy is unaffected.
How to choose life insurance coverage as a homeowner
These key steps can help you select a life insurance policy:
- Determine how much coverage you want. This will depend on factors such as your mortgage balance, other debts and your family’s financial goals.
- Think about how long you would want coverage to last.
- Decide how important it is to you to keep your insurance premiums level over time.
What are the major kinds of life insurance policies for homeowners?
There are three categories of life insurance coverage that homeowners may consider.
- A term life insurance policy can provide coverage with a level premium — one that doesn’t change — for the period of time you select as its term. For example, you can match your coverage period to the time left on your mortgage, such as 10, 20 or 30 years. If you pass away during this period, your beneficiaries will receive a death benefit that can be used to help pay off the remaining balance on your mortgage. If you still need coverage after that level premium period, you may be able to keep the policy in force, but costs increase each year as you age.
- A whole life insurance policy can provide permanent coverage for your entire life1, including the length of your mortgage. In addition to providing a death benefit that can be used to help pay off your mortgage, whole life insurance also includes a cash value² component that can accumulate over time. It can be used to pay for your premiums or other expenses.
- Index universal life insurance is similar to whole life insurance in that it can provide coverage for your entire life³. However, it offers more flexibility in terms of premiums and death benefits, which can give you the ability to adjust your coverage as your needs change.
What is the cost of life insurance for homeowners?
Life insurance premiums can vary widely depending on the type of policy you choose, your age and health, and other factors. It’s important to think about how much you can afford to pay in premiums and to consider a policy that provides the coverage you want at a price that is affordable for you.
How speaking with an agent can help you sort out your life insurance options
Selecting life insurance coverage as a homeowner requires careful consideration of your financial situation, goals and loved ones’ needs. Your local Farmers® agent is here to help you navigate the options as you choose the best policy for your individual circumstances. Find an agent.
1Lifetime coverage (or life of the policy) is guaranteed provided premiums are paid per the terms of the contract.
2Cash values may be accessible through policy loans or partial surrenders. Policy loans that are not repaid and partial surrenders will reduce cash surrender value and death benefit. Policy loans are subject to interest charges. If your policy is a Modified Endowment Contract, loans and surrenders may incur taxes and penalties.
³Lifetime coverage (or life of the policy) is guaranteed as long as all premiums are paid to keep the policy in force. The cost to keep your policy in force will increase over time.
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The information contained in this page is provided for general informational purposes only. Read our editorial standards for Insurance Questions and other content. We make no representations or warranties of any kind, express or implied. This does not refer to any specific insurance policy and nothing herein is intended to replace or modify any terms in your actual policy.
Farmers may also provide information on topics that are not directly about insurance policies or coverage that we believe could be helpful to you. Information in such articles is not meant as professional advice, and any reliance you place on such information is therefore strictly at your own risk.
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