This post is guest written by Breathe Life – Live in the moment, plan for your future.
You’ve signed the papers and have the keys in hand. In between unpacking boxes and surviving on take-out, you probably haven’t had much time to think about life insurance. But you should.
Often the largest investment you’ll make in your lifetime, you’ll want to protect your home well into the future. Mortgage insurance is mandatory in Canada if you put down less than 20 per cent on your home, but the purpose of mortgage insurance is really to protect the lenders from default. If you purchased mortgage insurance, you should still consider life insurance. Here’s why.
Mortgage insurance will pay off your mortgage in the event of a catastrophe. But the amount of payout goes down as you pay down the mortgage. For example: if you bought a house for $200,000 and had paid off $50,000 by the time disaster strikes, the insurance will pay out $150,000. It won’t pay out the original value of the house. The payout doesn’t go to your family; it goes to the lender. Your spouse won’t have any say in how that money is spent. Also, if you or your partner passes away after the house has been paid off in full, the policy has no value.
With life insurance, you can replace more than the house’s value. Include in the payout the amount of any repairs the house might need in the future, like a new roof or windows, which your partner could struggle to pay for on one income. Consider funeral expenses, college for your children, and replacing the income one partner contributed to the family. Your partner can also decide if they want to keep or sell the home, depending upon their changed circumstances. Mortgage insurance will do none of these things. It pays off the remainder of the mortgage – that’s it.
Another advantage to life insurance is that, if you purchase a whole life insurance policy, it will have value at the policy’s end. A whole life insurance policy has higher premiums than a term life policy, but those premiums are invested, and you’re guaranteed a tax-deferred return on them. It can be a stable investment vehicle for your family’s future, unlike mortgage insurance where you’ll see no lasting value from the premiums you’ve paid.
Look into life insurance if you just bought your first home. The monthly premiums are lower than you think, particularly if you’re younger and in good health. You can apply online and get a quote in less than three minutes. That’s faster than the Chinese take-out will arrive.
Dan O’Shaughnessy is the Principal Broker at Breathe Life – There’s no denying it. Everyone deals with difficult financial decisions throughout their lives, and financial institutions make these choices long and hard to navigate. Breathe Life is on a mission to change that. We’re creating an environment where people can find the tools they’re looking for and the advice they need to make smart decisions and find peace of mind.