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Do homeowners need life insurance?

There’s a lot to think about when buying a house. Eager homebuyers might need to consider everything from saving for a deposit to budgeting for the new mortgage as they enter the property market. And, once the sale is complete, many naturally want to put safeguards in place to help them protect this asset.

Life insurance could be an important part of your homeownership plans. If you’re looking to buy or have recently purchased a property, a life insurance policy could be a smart addition to your financial portfolio.

Why life insurance?
Many property owners no doubt feel that home and contents insurances are essential. Fire, flood and burglary are just a few of the worst-case scenarios that we generally understand the importance of preparing for. However, many people neglect to also consider life insurance when they buy a new home.

Home and contents insurances help replace tangible things—your house and everything you own inside it. It’s often easy to understand their importance, because they are closely tied to objects we use every day and the home we share with loved ones. However, the role of life insurance might be harder to grasp for some.

If you were no longer around or able to pay the mortgage, would your family be able to afford the monthly repayments? Would they need to sell the family home to avoid falling into debt? This is where a life insurance policy can come into play. Should the unthinkable happen, and you were no longer able to provide for your family, life insurance could mean the difference between them keeping or losing the house. For grieving loved ones, needing to move out of the home they’ve built together could add further trauma to an already difficult situation.

Whilst we often equate life insurance with someone’s death, it could help protect your financial future in other ways as well. Many policies pay the benefit early if the insured is diagnosed with a terminal illness, or have optional covers available for protection against events such as a serious accident. The money could be put towards the mortgage, helping remove some or all of this financial burden if you are unable to work.

Underinsurance – a growing issue
But what if you already have life insurance? As a homeowner, it might make sense to review your policy from time to time. As our circumstances change, the amount of life insurance you may need might change as well.

For much of the Western world, underinsurance is a big issue. In New Zealand, one study estimated a $1.95 billion gap between the life insurance people held and what was actually needed there. This underinsurance gap could be devastating for those families who are unaware that the life cover they hold is not adequate.

New homeowners may want to review an existing life insurance policy to see if it still meets their financial needs. Many people choose a benefit amount that could pay off the mortgage completely in the event of their death, giving their loved ones less to worry about and allowing them to remain in the family home. A policy taken out before purchasing a home might need to be increased to achieve this goal. Similarly, it may make sense to increase your policy benefit if you’ve upgraded to a larger, more expensive house or taken on additional debt to pay for renovations.

Planning for the future
Along with home and contents insurance, life insurance could help homeowners provide more complete protection against the unknown. By insuring not only the home itself, but also your ability to pay the mortgage, you and your family could have even greater peace of mind. You’ll hopefully never need it, but having a life insurance policy in place could help everyone rest a little easier.