Life Insurance as a New Paradigm for Home Insurance

Virtually all property owners purchase home insurance policies as a condition of obtaining a mortgage or a prudent investment in a family’s most valuable asset.  Generally, homeowners acknowledge the need for protection of their home from perils like fire, hurricanes, vandalism and other perils as well as liability claims arising from lawsuits.  By contrast, the decision to obtain life insurance is considered less urgent and treated as a matter of discretion.  Individuals and married couples who do not yet have children frequently discount the urgency of purchasing life insurance. 

However, there is a sense in which life insurance can be viewed as homeowner’s protection in another form.  There are risks and hazards that a homeowner’s insurance policy will not cover that a life insurance policy can safeguard.  If the ability of a family breadwinner’s income is suddenly lost, a life insurance policy can protect your home by preserving a source of funds from which the mortgage can be paid.  In other words, life insurance coverage ensures the ability of beneficiaries to continue to cover the cost of maintaining the mortgage, so surviving family members can remain in the family home.

The Role of Homeowner's Insurance

As explained above, homeowners insurance provides financial security in the event your home suffers property damage because of perils like hail or wind.  This form of coverage also provides a source of funds if your home or property inside the home are lost because of theft, explosions or a range of other natural and man-made perils.

Home insurance also provides extra living expenses if you must relocate on a temporary basis while your home is being repaired after suffering damage from a covered peril.  The policy also can cover medical and legal expenses if someone is injured in an accident on your property because of your negligence.

The premiums you pay for a homeowner’s policy will vary over time based on changes in your home and life circumstances.  When you add a room or second story to your home, your premium will increase because of the higher cost associated with rebuilding your home.  If you re-roof your home, your premium might be expected to decrease because the newer roof provides more protection against potential perils like wind and hail.

Comparing the Role of Life Insurance

Life insurance offers a long-term coverage plan that can provide a lump-sum payment to named beneficiaries if the policyholder passes away.  This financial planning tool provides financial security to pay the mortgage to the family of the policyholder.  There are three general types of life insurance coverage:

  • Whole Life Coverage

This type of policy functions as both life insurance coverage and an investment fund.  The premium amount will be fixed and will be slightly higher than a term life policy.  A portion of the premium is paid toward an investment made by the insurance carrier.  The policy builds a cash value, and the policy is intended as permanent coverage.

  • Term Life Coverage

This form of coverage usually involves the lowest level of premium.  The insurance coverage is provided over a fixed period of time typically from 10 to 30 years.  The premiums do not vary over the course of the term.

  • Universal Life Coverage

This form of coverage offers both a cash value and permanent life coverage, but it offers increased flexibility.  Although these policies usually entail a higher premium than basic whole life coverage, the premium can be adjusted as you adapt the coverage amount over the course of the insured’s life.

Most people who purchase a new residence have the timing of purchasing a homeowners policy dictated by their mortgage lender.  The decision about when to purchase life insurance is up to the individual consumer although many purchase life insurance when they have kids.  As this blog post suggests, there are ways that a life insurance policy can also act as a supplementary form of homeowner’s coverage.

My law firm represents life insurance policyholders in claims disputes in Miami and throughout Florida. The Law Firm of J.P. Gonzalez-Sirgo, P.A. offers free consultations regarding insurance coverage questions and case evaluations. No Recovery, No Lawyer Fees. Call 305-461-1095 or Toll Free 1-866-71-CLAIM. 

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