For most households, the home is the largest financial commitment they will ever make, and the mortgage attached to it is a bill that keeps arriving whether or not the income behind it does. That is the starting point I use when I talk about life insurance, because it turns an abstract product into a practical question. If one person were gone tomorrow, could the household still carry the home?
Life insurance is most relevant when two people depend on each other to make the mortgage payments. If one spouse were to pass away, there would be a real chance of the surviving spouse losing the home. As hard as losing someone close to you is, the financial loss makes it worse. A policy is designed to take care of that risk, so a person who is already grieving is not also struggling to keep up with the payments.
Based on this, I usually recommend life insurance for anyone who has recently purchased a home or who already owns one, particularly when a spouse helps make the payments or cover the expenses of owning it. Without a policy in place, the surviving spouse would most likely have to sell the home, and other assets could be sold as well to fill the gap.
The type of policy matters, and there are two main choices. A term policy is the least expensive option, but it covers only a set number of years. After the term expires, the coverage is gone. If the person did not pass away during that term, there is no benefit and nothing built up from the premiums.
A whole life policy is a permanent policy, which means it lasts forever. I compare the two to owning a home. Whole life is similar to owning, because each payment builds equity inside the policy, and the coverage does not expire. Term costs less, but it is closer to renting. You are not building any equity, and once the term is over, you have no coverage.
Which one fits depends on where a person is financially. Term makes sense when keeping the cost low is the priority. Whole life makes sense when permanent coverage and building value over time matter more. Age also affects the decision, because the younger a person is when buying whole life, the less expensive it is.
I think this is especially important for young homeowners, and even more so when one spouse stays at home while the other works. In that situation, the household relies entirely on one income to make the payments. If that income were lost, the effect would be very detrimental, and the family could lose the equity in the home as well as other assets.
An independent agency is useful in this decision because it is not limited to one product or one carrier. 1 Reason Insurance can compare term and whole life options based on a client’s situation, instead of presenting a single choice. The company is not competing by being the cheapest option. It is competing by helping people understand what they are protecting and matching the coverage to where they are today.
Before choosing a policy, it is worth looking at the mortgage and asking one question: who would carry it alone? The answer usually makes the decision clear.