New Homeowner Protect Your Investment

Purchasing a new home is a big investment – one you want to protect. A good insurance policy can help you do that. If you or your spouse passes away, life insurance can help ensure that your family can pay for your home. When purchasing or revisiting your insurance policy, consider whether it will cover the true costs of home ownership.

Plan to cover your current mortgage with life insurance

When you’re purchasing a life insurance policy, evaluate how much your income pays for household expenses. On average, Canadians spend 43 per cent of their monthly income on housing-related costs, including their mortgage (Globe and Mail, 2014). If your family were to lose your income in the event of your death, would they struggle to keep up with mortgage payments? If you pass away, an adequate life insurance policy can help pay your mortgage and help ensure that your family is able to keep their home. Consider purchasing a life insurance plan that will cover the outstanding balance of your mortgage. For example, if the balance of your mortgage is $250,000, consider a plan of at least $250,000.

Remember: the same applies to your spouse. If you need his or her income to help pay the mortgage, he or she should also consider purchasing enough insurance to cover housing costs.

Understand your expenses

As a homeowner, you know there are plenty of home-related costs beyond your mortgage payments. As the experts at GetSmarterAboutMoney.ca explain, there are upfront costs, ongoing costs and unexpected costs. For example, utilities and routine maintenance are ongoing costs, but repairing storm damage is an unexpected cost.

To maintain a home’s value, homeowners must pay for ongoing maintenance. If you pass away, a life insurance plan can protect your investment by providing your beneficiaries with money to pay for upkeep, helping the property hold its value. Sufficient insurance can also protect your family from having to sell the house if they cannot afford the upkeep.

Assess how much you typically invest in your home annually then consider purchasing a policy that covers both your mortgage and other expenses in the years to come.

Which is best: Life insurance or mortgage insurance?

Mortgage insurance is a financial product designed to protect the home buyer and the lender. In the event of your death, it covers the remainder of your mortgage.

Both mortgage insurance and life insurance can help protect your home. However, there are important differences between the two. Typically, the premium on mortgage insurance plans is higher than life insurance premiums and the death benefit is tied directly to your mortgage. With mortgage insurance, as you pay off your mortgage the possible payout decreases because it’s tied to your mortgage balance. In contrast, term insurance payouts remain the same for the length of the term (Toronto Star, 2012). The fact that mortgage insurance is tied to your mortgage also means that if you purchase a new home, you’ll have to change your mortgage insurance policy. Life insurance stays with you.

Life insurance can also be more flexible. The money provided on your death is paid to your beneficiaries. They can use it for a variety of needs such as debt, children’s educations and income for your family. Teachers Life Renewable Term Insurance offers flexible term insurance plans that can change based on your family’s needs. So if you buy a bigger home or downsize in your later years, you can adjust your life insurance plan as needed and continue to protect your family’s home. Use our needs analysis calculator to find out more.

Revisit your policy when buying a bigger house

As your family grows or your needs change, you may purchase a bigger home. This will likely mean your mortgage and upkeep costs will change. Remember to change your insurance plan accordingly. Again, be realistic about anticipated costs and the time it will take to pay off your mortgage. Life insurance can be used to protect your family from having to sell their home, so make sure you upgrade your insurance policy when you upgrade your house.

Follow along for more tips and tools

On our blog we have an ongoing series called “Insurance for Your Life Stage,” where we discuss how insurance needs can change through each of life’s stages. Follow us on Twitter and be a part of our Facebook community.

 

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