Life Insurance for Homeowners
So far, in our blog series on Life Insurance, we’ve discussed the importance of securing a life insurance policy no matter what stage of life you find yourself in, including if you are single, married or have a family. We also offered specific examples of why, no matter what your age or lifestyle, life insurance is:
- One of the most important things you can do to ensure your future financial stability
- Extremely affordable especially when you consider the value and peace of mind that it provides
- A smooth, easy, and comfortable buying process if you work with knowledgeable and proactive insurance professionals
At Bearingstar Insurance, we passionately believe that life insurance is extremely important to have – and worth the time investigating – no matter what chapter of your life you find yourself in today. That’s why we would like to now share information with you about how the right policy can safeguard one of the most important assets in your life – your home.
Even if you don’t yet own a home, we hope you will keep reading this blog. You never know if this exciting venture could be in your future and having the information below, in advance, will put you several steps ahead of everybody else!
LIFE INSURANCE FOR HOMEOWNERS
At Bearingstar, we believe that true peace of mind and thorough protection for your home and all it means to you, can only come when you have the proper life insurance policy in place. Specifically, we would like to compare two types of insurance plans – Mortgage Protection and Mortgage Acceleration – that you may want to consider as a homeowner. Either one could provide significant assistance to your family in the event of your untimely passing, especially if that could leave your loved ones struggling to pay your home’s mortgage:
A Mortgage Protection Plan, uses a Term Life Insurance Policy, or multiple term life insurance policies, to ensure your family will receive a death benefit greater than or equal to the principal owed on your mortgage. Term Life Insurance is considered one of the least expensive and most simple types of insurance because it offers coverage for a specific period, usually up to 30 years, and pays out if your death occurs within the policy’s term. This type of plan might be a good option for a homeowner for the following reasons:
- You can buy enough coverage to meet all your family’s needs, including but not limited to repayment of the mortgage
- You can choose a policy length based on your longest-term financial obligation, whether it’s your mortgage or your children’s college years or another large debt
- The death benefit goes to whichever beneficiaries you choose and they can use the money however they like, whether it’s the mortgage that is a priority or they decide to use the money for other needs that they deem more critical
At Bearingstar Insurance we feel it is important to explain to our life insurance clients the primary purpose behind a term life insurance policy; it is aimed at replacing income, so that if you were to pass unexpectedly, surviving family members would have help paying off any remaining debts, covering funeral-related expenses, and, potentially, for future known expenses, such as a child’s college tuition. While it is inexpensive and easy to maintain, if you outlast the term of your insurance policy, then term life insurance ends up being just a pure cost to you with no cash value at the end.
A Mortgage Acceleration Plan, on the other hand, uses Permanent/Whole Life Insurance to help you achieve broader overall financial goals and to provide you with greater flexibility and value. With this type of plan, your premium includes an insurance and an investment component, and this investment builds an accumulated cash value that you, the insured, can borrow against or withdraw tax-free. This means that your policy can actually serve as a vehicle for savings, sheltering your money, and paying off your mortgage. With a properly structured mortgage acceleration plan in place, homeowners like you may be able to:
- Pay off your mortgage faster than scheduled, while still capturing maximum home interest income tax deductions
- Accrue tax-free dollars and have access to this cash for tax-free loans that can be used for a variety of reasons
- Save tens of thousands of dollars that you would have given to a lender, never to be seen again
- Still maintain a tax-free death benefit and additional allowances for beneficiaries
Finally, with the proper mortgage acceleration plan in place, homeowners like you don’t have to make irreversible decisions with your money. That’s extremely beneficial because not many of us have the uncanny ability to predict what will happen next year, not to mention over the next 30 to 35 years. Who knows if you will decide to purchase a different home, invest in a start-up business, or have triplets! Whatever life has in store for you and your family, a mortgage acceleration plan is a much more flexible plan that will leave you with plentiful options to choose from.
Just as every home is different, so is every homeowner and their needs. Which life insurance plan will be the best fit for you will depend on several factors including your health, how long you plan to live in your home, if you think you may refinance your home at some point, and if you want your home to stay with your family no matter what happens to you. Bearingstar’s life insurance specialists can help you decide which option is best for you, your loved ones, and the future of your home.
With Bearingstar as your partner, you will find the life insurance buying process can be quite simple and cost-effective. Contact us today for more information or visit us at any one of our convenient Massachusetts or Connecticut offices.
A Real-Life Example Of A Mortgage Acceleration Plan.
We Hope This Story Will Help You Understand The Advantages Of This Program!
You and your spouse are in the market for your first home. The house you have your eye on is going to increase your monthly living expenses from $800 a month to $2,200. While you know you can afford it, it isn’t going to leave you with much, if any, cushion each month for the unexpected. That being said, you two have decided to move forward with your purchase and now need to get a mortgage.
Your lender presents you with a very large menu of mortgage options; variable rate mortgages, balloon mortgages, fixed rate mortgages, all of varying length. Prior to seeing all these mortgage variations, you had thought that your only choice would be between a 15- or 30-year mortgage, and had planned accordingly to go with one or the other. So, all this variety comes as quite a surprise to both of you!
One particularly appealing option is a 35-year mortgage, primarily because the payment is almost $400 less a month compared to the 30-year mortgage. Extending the time-frame of your mortgage wasn’t your initial objective, but now you’re rethinking your strategy. You’re smart to be wondering if there is anything better you can do with that $400 than giving it to your lender.
Lucky for you, your Bearingstar life insurance specialist has an advantageous solution for you; you may want to consider utilizing a whole life insurance policy to create a cash value reservoir based on dividends from strong insurance companies. To help you decide if this is the right plan for you, the Bearingstar team does a lot of heady calculations to ensure that the cash value accumulation of your policy will match up with the pay-off timeline of your home loan.
Lo and behold, by redirecting the $400 monthly to the whole life policy, Bearingstar demonstrates that you could have enough cash in the policy to pay off the loan by year 28 as opposed to the 35-year term of your loan.[1]
You know what is even better? This mortgage acceleration plan is going to save you tens of thousands of dollars in mortgage payments!
But, that’s not all; Bearingstar shows you that there are other benefits to this solution too. Many homeowners might have used the extra cash $400 you had budgeted to pay off more principal, but by putting this in an investment vehicle instead, you will still maximize the deductibility of your mortgage interest, creating thousands of dollars in additional deductions over the life of the loan.
Perhaps most important to you and your spouse is that a mortgage acceleration plan will provide you with flexibility and access to cash in case of an emergency or just a surprising life twist. Not many people know how life will change over the course of 35 years. What if, 10 years into paying off the loan for your starter home, you have the opportunity to buy your dream house? Even if the sale of your first home doesn’t leave you with much to use on a downpayment for your new house, thanks to the wise life insurance advisors at Bearingstar, you will have reserved extra cash in a side account – your whole life insurance policy – and it will be easily accessible for a home downpayment.
It’s a great benefit to have the cash value of your whole life policy always available by way of loan should it ever be needed, with no interest and with the ability to set up a repayment plan that works for you.
What if you never move? Well, you would have had the choice to pay off your mortgage at year 28, if you want to. Or, you can choose to fund the mortgage payments a different way and keep the cash value in the life policy to accrue as a conservative retirement vehicle. It’s all about having the freedom to choose what works best for you at any given stage of our life.
[1] It is important to check with your lender to make sure there are no penalties for an early payoff of your loan, which there shouldn’t be. In addition, the cash value of your whole life policy is projected to surpass the principal owed to the mortgage company assuming current dividends, but this is not guaranteed.
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