Reviewing your life insurance coverage every five years or when you make significant changes to your financial profile is good practice. Buying a new home is a particularly good occasion to get all your financial and estate planning up to date. There are four key reasons why new homeowners take advantage of this life change to update their life insurance.
Changes in Personal and Financial Circumstances
Purchasing a new home often comes with other life changes, such as getting married, having children, or having aging parents move in with you. These changes come with increased financial obligations that must still be met if you unexpectedly pass away. Reevaluating your long-term finances when you buy a home is the best way to ensure that nothing slips through the cracks and no one gets left behind without financial support.
Changes in Homeownership Status
Transitioning from renting to owning a home means taking on a bigger and longer-lasting commitment. Homeowners invest in their houses as well as their communities and their families, with the intention of continuing to build the relationships and bonds that make a house a home. Your financial plan should have a similar perspective: one that guarantees your family’s financial stability over the long term. That will include maintaining your home, paying your property taxes, staying current on your mortgage payments, saving for retirement, educating your children, funding your retirement, and paying for your final expenses. Life insurance plays an important role in your financial planning; updating it when you buy a home is a vital aspect of your long-term planning.
If you had life insurance before you purchased a home, it might not be enough to cover your evolving needs. You will now have a large asset that serves as both shelter for your family and an investment in your long-term financial well-being. It is important to protect this asset in the same way you protect anything else you value.
Your income will likely increase as time passes, but your responsibilities will also grow. You may have more children or pets, and elder care could take up more time and draw on more of your resources. As you become more secure in your career and your ability to handle your other responsibilities, you may also enter into additional financial commitments or acquire other real estate assets, such as a vacation home or rental property. All of these added monthly payments will continue if you pass away, and it will take time for your family to sell the assets they no longer need. Additional life insurance will cover your family’s ongoing expenses and give them breathing room to decide what to do with the assets you will own at that time.
Differences in Policy Options
Before purchasing a home, you may have had a smaller policy to cover your final expenses, pay off your outstanding debt, and leave some money for your loved ones. Once you purchase a home and are thinking about your longer-term outlook, you should review your policy options to see what advantages they offer.
Permanent (whole) life insurance covers you until you pass away as long as you keep up with the premium payments. This type of insurance also has a cash value that builds over time. You can borrow against this cash balance or withdraw all or part of it once it reaches a certain level. That gives you an additional savings vehicle and can also be a source of emergency funds if you need them. A permanent policy is an excellent way to ensure your loved ones have financial support if you unexpectedly pass away.
Term life insurance covers you for a specified period of time, typically 10, 20, or 25 years, although other terms are available. Term life insurance can play an essential role in your insurance coverage because some of your expenses will stop or get lower over time. For example, you will eventually pay off your mortgage, drastically lowering your monthly expenses. A term policy that ends when your mortgage is due to be paid off is ideal for this.
Mortgage insurance is specifically designed to pay off your mortgage if you pass away. This relieves your family of the financial burden of ongoing mortgage payments. The disadvantage of mortgage insurance is that it only pays the outstanding mortgage amount, whatever that amount is at the time. If your family makes a claim against this insurance 20 years after you buy your home, the payout will be much smaller than it would be if you pass away in 5 years. In addition, the funds are paid directly to your mortgage provider rather than going to your family, and nothing is left over for their other needs.
Insurance riders are add-on options to life insurance that are offered by some insurance providers. You may choose to add a disability or critical illness rider for added protection. You can also purchase plans for critical illness and disability separately. Working with an insurance broker can help you weigh your options for the best overall package.
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Canada Protection Plan
Canada Protection Plan is Canada’s leading provider of No-Medical and Simplified Issue Life Insurance. We offer both Term Life Insurance and Permanent Life Insurance policies and Critical Illness Insurance to suit the needs of new homeowners and growing families. Unsure what type of coverage you need or what size policy is best for you? Try our calculator tool for an indication, and talk to one of our licensed insurance advisors to dig into the specifics of your life and your family’s circumstances.
Homeownership is an exciting transition. It brings with it new opportunities for growth and exploration while you’re settling into a long-term plan. Your insurance should line up with your new outlook and your new obligations, making this the perfect time for an upgrade. Contact us today so that you enter this new chapter with the peace of mind you and your family deserve.
422136 CAN (07/23)