Protecting Home Ownership (With Life Insurance?)

Typically, when we talk about home insurance, the conversation is about repairing, rebuilding or even replacing the home after a loss. In the Bay Area, that conversation focuses on large losses caused by fires or earthquakes. As an insurance agent, my job is to help my clients consider all the causes of loss. Instead of focusing on the building, let’s instead look at the occupants, the families who make the house a home. I call this approach protecting home ownership.

It’s been a decade since the mortgage crisis when so many families lost their homes to foreclosure. With today’s high home prices, you might be wondering if the cycle will repeat itself. Are prices too high? Will there be a serious decline in future values? Will the bubble burst? These are questions for economists, and important in theory. I encourage clients to think in more practical terms which leads to a different set of questions. “Can I afford my mortgage?” and “How long can I continue to pay my mortgage if my current income declined or stopped?” “How much do I need in cash reserves to address potential income gaps so that my mortgage is not at risk?”

Sept is Life Insurance Awareness Month so this article will provide some insight into how Life Insurance protects home ownership, and give you some food for thought to consider.
Because Insurance is based on actuarial science, I turn to the internet for statistics each time I prepare a topic.

Here’s some trends I found in my research.

• 44% of percent of Americans between the ages of 60 and 70 have a mortgage when they retire, and as many as 17 percent of those surveyed say they may never pay it off.
• Mortality rates double every 10 year age bracket, regardless of local longevity trends. (example 25-34, 35-44, 45-54, 55-65 and so on)
• Only 57% Percent of American adults have life insurance, of that 34% have only group or employer based life insurance.
• 47% of Life Insurance policy holders have $100,000 or less in coverage.

This trend of holding a mortgage into what’s traditionally been the retirement years calls for additional financial planning and preparation. One of the tools to address this need is Life Insurance.
Unlike home insurance, which must be used to repair, rebuild or replace your home. Life Insurance proceeds are unrestricted. You can use them for any purpose. This flexibility is ideal. You could simply pay down or pay off large bills like your mortgage, reducing your cost of living. Or you could invest the money to create a long term income stream that supplements your retirement.

One type of Life Insurance, the “cash value” policy has a provision to save and invest funds for the future. If you have this type of policy, you can use the policy to pay bills later in life, and still leave a lump sum benefit for your family. For people with this type of policy, Life Insurance is part of their long term financial strategy.

Because Life Insurance is such a valuable tool, I think it’s important for at least some of the coverage to be “owned” by you. This gives you more control over your financial circumstances. Many employers often provide a Life Insurance benefit, some a very generous one. These benefits are rarely portable, which means they stop when employment ends. Your next employer may not offer the same benefits, and with the high rate of job changing, owning a policy is a way to make sure you are always covered.

Not everyone will need Life Insurance, but for some it will be an essential tool to protect homeownership. Because Life Insurance can be complicated, and because your financial situation changes over time, it’s important to revisit this topic on a periodic basis. Most insurance agents offer a free consultation. That’s a great way to get feedback and ask questions about Life Insurance can help your family.