Buying your first home is an exciting time filled with promise and hope for the future. The Canadian government offers incentives for first-time homebuyers who qualify, so be sure to take advantage of this program if you can.
With your dreams of homeownership now realized, it is the perfect time to review your overall financial status. As a homeowner, having life insurance in place to protect your investment and financial future is important.
Many different insurance products are available to you, and you might be wondering which to purchase and if you need to have things like mortgage insurance in addition to your life insurance.
Read on to learn more about your insurance needs as a first-time homebuyer, then contact us at Hometown Insurance for more information and help with reviewing your coverage.
Buying Your First Home Is a Good Time To Review Your Insurance Coverage
You face many decisions when buying your first home, from the location, size, and construction type to the type of mortgage and lender you use. Your hand may cramp from signing so many papers at your closing, but the excitement of owning your first home far outweighs these challenges.
But one thing you will need to consider when purchasing your first home is life insurance. During your purchase process, you will be asked to consider mortgage life insurance as a form of protection for your loan. Your lender may want you to purchase this insurance product, but it is not mandatory – and you may not need it at all.
What Is Mortgage Life Insurance?
Mortgage life insurance is optional coverage many lenders offer their customers. This insurance can be helpful for your spouse or partner to continue paying the mortgage to remain in the home should you die. The coverage allows your surviving spouse to make payments to the lender as usual – so it can afford peace of mind.
Mortgage life insurance can be convenient as your lender often simply adds the costs of your premiums to your mortgage payment each month. But the payments do not go down as you pay off your loan balance as you might expect, and your beneficiary is limited to using the funds for the mortgage, which may not be what they need to spend it on the most.
Mortgage Life Insurance May Not Be Necessary
Mortgage life insurance can be a helpful product, but it is not right or even necessary for every first-time homebuyer. For example, many individuals and families already have robust life insurance policies in place or other plans to support their families should they die.
Mortgage Insurance Benefits Decrease Over Time: The amount of death benefits your family or beneficiary receives the remainder on your mortgage loan with mortgage life insurance – meaning the death benefit decreases as you pay down your loan. A traditional life insurance product does not decrease in value as mortgage life insurance does. Your premiums do not decrease to match this reduction in value, either. This means you may pay more for mortgage life insurance than you would for a traditional life insurance policy over time.
Mortgage Life Insurance Protects Your Lender, Not Your Family: When you purchase mortgage life insurance, make sure you understand it is designed to protect your lender, not your family. Mortgage life insurance coverage equals the amount left on your loan, ensuring your lender is covered in case you die, and your family cannot afford to continue paying the mortgage. But this also means there is no money left to be used by your family – all of the funds from this policy will go to your lender to pay them off.
Term or whole life insurance, on the other hand, does protect your family with a death benefit paid directly to your beneficiary, who then decides how to best use the funds. Many people do pay off mortgages with traditional life insurance death benefits, but they can make those decisions based on the interests of your family, not your lender. There may be another debt that is more urgent, or your family may have another plan for your home or to pay off the mortgage. The flexibility of how to use the death benefit is a significant benefit a traditional life insurance policy has over mortgage life insurance.
Mortgage Insurance May Increase in Cost at Renewals: Mortgage life insurance premiums may increase at each renewal, making the coverage that may have seemed reasonable when you purchased it much more expensive throughout your policy. Traditional life insurance premiums may have fixed prices, so you may save money with a traditional product.
Mortgage Insurance Uses Post-Claim Underwriting: Post-claim underwriting is when an insurance company reviews policyholders after a policy has been issued and particularly after a claim has been filed. This can result in a premium increase if the carrier learns more in this post-claim underwriting that changes their rating decision.
Final Thoughts
Your traditional life insurance products are often more than enough to protect your family and surviving spouse should you die. It is important to talk through your assets and debts with your family and beneficiary – your agent can help guide that conversation with you.
Using part of the death benefit from your life insurance to pay off your mortgage can be a valid part of your financial plan, rather than purchasing mortgage life insurance.
Remember, you do not have to buy mortgage life insurance as a first-time homebuyer, and you may not need it, especially if you have other traditional life insurance already. Your financial plan should include a way for your family to remain in your home, but that can be accomplished with traditional life insurance – which affords much greater flexibility to your beneficiary as compared with mortgage life insurance.
How Do I Learn More?
To learn more about your insurance needs as a first-time homebuyer, contact the experts at Hometown Life Insurance. Our licensed experts will be happy to answer any questions you have.
External Links:
- https://www.placetocallhome.ca/fthbi/first-time-homebuyer-incentive
- https://www.canada.ca/en/financial-consumer-agency/services/mortgages/optional-insurance-products.html#toc1
- https://www.canada.ca/en/financial-consumer-agency/services/insurance/life.html
