Term life insurance An important risk that homeowners run is that due to the death of one of the owners of the home by the survivor (s), the housing costs can no longer be paid. This risk can be covered with a life insurance policy. The most frequently chosen form of life insurance is term life insurance.
Factors in term life insurance In addition to the emotional consequences, in the event of death there are often also drastic financial consequences. This can be in the form of a fall in income (if a breadwinner dies) or an increase in costs (eg if childcare suddenly has to be arranged). When you take out a mortgage, you should think carefully about these consequences. It depends on various factors to what extent it is wise to hedge this risk. We have listed the most important factors below.
Mortgage institution requirements When taking out a mortgage, the required mortgage amount is in many cases higher than the value of the home purchased. This is related to the fact that part of the costs of the purchase are often co-financed in the mortgage. This means that the mortgage institution is also at risk if your income situation should change (drastically). If - in the worst case - you are no longer able to pay the mortgage payments, the mortgage institution has the right to sell your home. If the sales value is lower than the mortgage amount, this can be very disadvantageous for the mortgage institution. Since such a scenario could arise in the event of death, most mortgage institutions require that you purchase term life insurance.
Usually, the full mortgage amount does not have to be covered. The rule of thumb for several mortgage institutions is that the amount that is borrowed above 80% of the market value of the home must be hedged.
The mortgage institution will also require the term life insurance to be pledged. This ensures that, in the event of death, they have the right to use the insurance payment to pay off the mortgage. Usually they will also sit down with the next of kin to discuss whether this is desirable.
Family situation The greater the financial consequences of the death of a family member, the more important it is to properly cover this risk. A single person often does not benefit from covering this risk and will only cover the minimum amount demanded. Therefore, it may make sense for a single person to find a mortgage institution that will settle for as little life coverage as possible. For a breadwinner of a family with 4 children, however, it will often apply that a cover amount is chosen that is a lot higher than the minimum required by the mortgage institution. A rule that is often adhered to is that the next of kin (s) must be able to continue to live in the purchased home without any problems.
Financial situation When determining the amount of the term life cover, the total financial situation must be considered. If there is (a lot of) equity capital, a lower term cover is required than if, for example, there are additional debts in addition to the mortgage. In addition, it is important to look at the other facilities. Think of any survivor's pension provisions. If the breadwinner has a very generous surviving dependant's pension scheme, less term cover is required than if virtually nothing has been arranged.
Cost of the term life insurance With any insurance you have to make a trade-off between the costs and the benefits. In other words: do the costs for the insurance outweigh the cover offered for this. The costs (premium) of a term life insurance are not the same for everyone. The amount of the premium depends on, among other things, your age, gender, health, smoking behavior (smokers often receive a supplement), income, and the structure of the insurance (term and amount of cover). In recent years, premiums have fallen sharply due to increased competition. However, there are very large differences between the different insurers. It is therefore wise to compare different providers.
Calculate and compare death risk insurance Term life insurance is basically a very simple insurance policy. The most important factor in determining the best insurance is therefore the amount of the insurance premium.
Calculate and compare premium term life insurance