As you become ready to buy your first home, you become busy with the different details that need to be considered for your paperwork. These include the contract price, interest rate, commission, taxes, points, type of loan, closing costs, property insurance and many other details, and of course, adequate life insurance. Most likely, your lender may ask for it.
The reasons to have a Life Insurance while buying a house
There are numerous reasons that make it important to have life insurance policy at the time of buying a house. These are:
- If the down payment at the time of buying a house is less than 20 percent of the purchase price, you will be asked by the lender to have a policy called Private Mortgage Insurance (PMI) policy. The PMI policy acts as a protection to the lender in the event of default in paying the loan amount for any reasons that include death. However, if the balance in loan is paid below 78 percent of the purchase price, the PMI policy is not asked for.
- If you are planning to live in the house with your family, make sure to have enough life insurance that covers the mortgage cost on the house. In case of your death, the other family members will be able to stay in the house. This point is very important if you are living along with your children and spouse who will stay at home or if you are a two-earner family. The loss of your income does not mean loss of your house and all your investment in it.
- To cover your mortgage payments, either a term life insurance policy or a mortgage life insurant policy is required for the duration of the loan. These kinds of investments provide the principal for the later years. Any savings and other investments meet the other expenses of the survivors. If you have term insurance to cover a definite time of your life, it provides protection for the duration and is comparatively inexpensive. You can also drop the insurance when there is no need for it.
- Keep it in mind that whenever you buy a new house, make sure to go through all you insurance and bring it up-to-date. You must have adequate insurance coverage to protect your investment.