What's the Best Type of Insurance for Homeowners?
You already insure the house. You've got homeowner's insurance that covers fire, storms, and the neighbor's kid putting a baseball through your kitchen window. Great. But who's insuring the person paying the mortgage?
Because if you die with $280,000 left on a 30-year note, your family doesn't get to live there for free. They either keep making payments, without your income, or they sell the house, probably at a bad time, probably under pressure, probably at a loss.
The fix is term life insurance. And the math is simpler than most homeowners realize.
The Mortgage Problem Nobody Talks About
Here's what happens when a homeowner dies without life insurance. The mortgage company doesn't care about your funeral. They don't care that your spouse is grieving. Thirty days after your death, the next payment is due. And the one after that. And the one after that.
If your partner can't cover the mortgage on a single income, they have maybe six months before the situation gets desperate. Sell the house in a soft market? Move the kids to a new school district because they can't afford the neighborhood anymore?
A term life policy prevents all of that. The death benefit pays off the mortgage outright, or provides enough runway that nobody has to make life-altering financial decisions while they're still in shock.
DIME: The Homeowner's Calculation
You've probably heard people say "get coverage equal to your mortgage balance." That's a start, but it's incomplete. The DIME method accounts for everything.
D. Debt. Your mortgage is part of this, but not all of it. Home equity loans, credit cards, car payments, student loans. Every dollar you owe goes on this list. Dying debt-free is a gift most people don't think to give.
I. Income. How many years of your salary should your family have? The mortgage is just one expense. There's property tax, insurance premiums, maintenance, utilities, groceries, and the hundred other things your paycheck covers. Multiply your annual income by 10 to 15 years and add it to the total.
M. Mortgage. The full remaining balance. Not what you paid for the house. What you still owe. Check your most recent statement. For a lot of homeowners, this single number is somewhere between $150,000 and $400,000. That alone justifies a serious term policy.
E. Education. If you have kids, their college fund doesn't fund itself. Budget $80,000 to $120,000 per child for a four-year state school. More if you'd want options beyond state.
Homeowners who run the DIME numbers typically need between $500,000 and $1.5 million in coverage. That sounds like a lot until you add up the mortgage, a decade of income replacement, and a couple of college funds.
Why Not Mortgage Life Insurance?
Some lenders push mortgage protection insurance, sometimes called decreasing term. It only pays off the remaining mortgage balance, and as you pay down the loan, the benefit shrinks while your premium stays flat. You're paying the same amount for less coverage every year. That's a bad deal.
A standard term life policy gives you a level death benefit for the entire term. Twenty years from now, the payout is the same as it is today. And your family can use the money however they need to. Pay off the mortgage, cover living expenses, fund college. It's their money, not the bank's.
Buy It While the Rate Is Cheap
Mortgage rates aren't the only rates that go up with time. Life insurance premiums climb every year you wait, and they spike hard after a health change. If you own a home and people depend on you, the financial logic is simple: get a term policy large enough to zero out the mortgage and keep your family solvent.
The house isn't the asset. You are.