Life Insurance And Your Mortgage

By
Real Estate Agent

Buying a home can be an extremely confusing thing, especially to the first time home buyer. They're being asked to deal with their lender, the home inspector, the title companies and yes, we REALTORS, to name a few. They're signing and initialing paperwork, checking on the status of the neighborhood and check the schools. Needless to say, their heads are spinning. The only insurance they have to worry about is the homeowner's insurance, right...wrong!                  

I think we do our clients a great disservice if we don't bring to their attention the need for life insurance. Many banks and mortgage companies will offer life insurance for the buyers, but will have their name on the beneficiary line. Your clients pay the premiums and the lender receives the proceeds at the time of the insured's death. That's great as long as the surviving spouse wants to have the home paid off and continue living in the home. But what if they don't?

Here are several reasons why a surviving spouse may not want to remain in the home or have the mortgage paid off:

1. The daily reminders of his or her loss may be too difficult to the surviving spouse and family to handle.

2. The house may simply be too big to maintain

3. The surviving spouse may want to move closer to friends and family

4. He or she may need to relocated to a better job or school area

5. It may be better at such a time not to pay off the mortgage and retain the tax deduction on the interest payments; the spouse in question may want to pay the mortgage to a point where he or she can comfortably hand the payments and keep the tax deduction of the interest payment.

 

No matter what the reason, the surviving spouse has no control of where the money goes. The only way your client will be in control of this money is to actually own their own insurance policy. They can name their own Beneficiaries; they structure the policy the way they want to; and most importantly, they have control.

Life insurance should do more than cover the cost of the home. Since most households have both spouses working, imagine what happens if one of these incomes disappears. Will the family be able to continue as it did with the two incomes? It will be hard enough dealing with the loss of a loved one, but with mounting bills, the only other alternative may be to sell the home.

Life Insurance doesn't have to be all doom-n-gloom. There's also a way to benefit from a life insurance policy that doesn't involve the death of a loved one. The cash value of a whole life policy from a mutual life insurance company can grow tax free and can be used to pay off the balance of a mortgage when the time is right. You're basically killing two birds with one stone:

1. You have a life insurance policy in case something were to happen;

2. If nothing does happen, you can pay off the home early and still have your insurance.

As REALTORS, we should bring value to our clients. We should be more than just the person who sells them a house. Talking about life insurance can be a difficult thing. Nobody wants to think about the loss of a loved one or their own mortality, but it is a fact of life. Going to the funeral of a client would be bad enough, but looking into the face of their spouse would be worse, especially if you didn't have that "life insurance conversation" when you had the chance. Your excuse of, "but it made me feel uncomfortable" just isn't going to cut it!

 Many of us work with teams of people, including home inspectors, loan officers and title companies, to name a few. I think a good addition would be the life insurance agent.

Comments (2)

Greg Freeman
Citiwide Real Estate Services - Allen, TX

Great post, Life insurance so important, Unfortunately most dont consider it until its to expensive or just to late.

Dec 11, 2010 06:46 AM
George Jones
Surprise, AZ
GRI

That's very true, Greg.  Insurance is easy to get when you don't need it; but almost impossible to get when you do.  By then, it's too late.

Dec 19, 2010 04:29 AM