Why first-time home buyers need life insurance

Buying your first home is a major life milestone. It’s also a significant, long-term financial commitment. Not only do you need a plan to pay off your mortgage, but you also have to think about how it might affect your loved ones. Who would help your family pay off your home if you weren’t around anymore?

One way to provide them with financial protection is with a life insurance policy. Here’s what you need to know.

The cost of a home

Although home costs vary greatly across the U.S., the median pre-existing sale price was $406,700 as of July 2023, according to the National Association of Realtors. The median new home sale price was $436,700, according to the U.S. Census Bureau and the U.S. Department of Housing and Urban Development. No matter the cost of the home you want to buy, if you’re like many other first-time home buyers, you’ll probably need to finance your purchase.

When you take out a mortgage to buy a house, you’ll be paying for more than just the purchase price of your home. Like other loans, you’ll pay interest for the amount you borrow, or your principal. Interest rates depend on several factors, including current economic conditions, your credit score and history, and the loan term.

As of September 2023, the average mortgage rate for a 30-year fixed loan was just over 7.5%. Your monthly payments will also include property tax and homeowner’s insurance, as well as private mortgage insurance (PMI) and homeowner’s association fees, if applicable.

You’ll have a few other costs to consider when buying a home. First, there’s the down payment. The more you put down, the lower your monthly mortgage payments.

Additionally, putting down at least 20% eliminates your need for PMI. However, not everyone has enough money set aside for a significant down payment.

There are also your closing costs, which range from 2% to 5% of your home’s purchase price. In other words, the amount due at signing could be between $9,000 and $22,500 for a $450,000 mortgage.

Many lenders allow you to roll these costs into your loan. But doing so will increase your monthly payments. You’ll pay interest on these one-time costs, too.

And then there’s the ongoing cost of owning a home. You’ll want homeowner’s insurance (or be required to take it out), along with any additional coverage such as flood or earthquake insurance, to help you cover the cost of repairing damages or replacing personal belongings following covered incidents. And then there are the things that homeowner’s insurance (and other policies) won’t pay for, from fixing your air conditioner or replacing your air filters to upgrading your patio and bills like water, gas and electricity.

Why you need life insurance as a first-time home buyer

Your home is an investment. It’s also the place that provides you and your family with a safe, secure residence. Not to sound dramatic, but failing to make payments — for whatever reason — could have devastating consequences for your family.

One potential reason you might miss payments is that something happens to you. Who would make those monthly mortgage payments if you’re no longer around?

Life insurance is a good idea because it would provide your family with a lump sum payment in the event of your death. Your family can use that money however they need to, from burial expenses to groceries. They can also use it to pay off the house, either all at once (if the policy is worth enough) or over time.

Life insurance provides your family with a financial safety net. The death benefit they receive can help them continue making mortgage and other debt payments no matter what happens.

With life insurance, you get peace of mind knowing that your loved ones will remain safe and secure in the event of your passing — a benefit that you’ll appreciate while you’re still living.

Choosing the right amount of coverage

One of the first steps of shopping for life insurance is determining how much coverage you need. The general recommendation is to choose a policy worth five to 10 times your annual salary. For instance, if you make $65,000 per year, you would need a policy worth between $325,000 and $650,000.

Of course, this “rule” isn’t hard and fast. The exact amount of life insurance coverage you’ll need will depend on numerous factors, such as the number of dependent children you have — and if you want your death benefit to help cover the cost of their college tuition. Another factor to consider is the amount of your debts, including your mortgage, as well as credit card debts and auto loans, and your overall financial situation.

Ideally, you want your life insurance policy to be enough to keep your loved ones financially secure in the event of your death. At the same time, you want to be sure it isn’t too much. After all, the larger your policy, the more your monthly premiums will be.

Still not sure how much coverage you need? A life insurance calculator can provide you with a more personalized estimate.

Choosing the right type of life insurance

When shopping for life insurance, you’ll also need to decide what type of policy you want. The two most common types of insurance are term life insurance and permanent life insurance.

Term life insurance policies cover you for a set period, usually between 10 and 30 years. If you were to pass away during your policy period, your beneficiary (or beneficiaries) would receive a tax-free death benefit equal to the policy amount you bought.

If your term ends while you’re still alive, you may be able to extend your coverage after your policy period ends, but your premiums will typically be higher. (On the other hand, you’re still alive, which is a plus.)

Permanent life insurance (including whole life insurance) remains in effect for your entire life, as long as you keep paying your monthly premiums. The policy also might accrue cash value over time.

How do you know which type of life insurance is right for you? First, consider your budget. Permanent life insurance policies tend to be more expensive. For a $100,000 whole life insurance policy from TruStage, a 25-year-old woman can expect to pay $93 per month.

Term life policies, on the other hand, are much more affordable. For example, a 25-year-old woman in excellent health can get a 30-year Haven Term policy worth $250,000 — the minimum amount available — for $14.57 per month. That’s more than twice as much coverage for about 15% of the price.

You’ll also want to consider how long you want your coverage to last. Term life insurance can provide financial protection during a time when you need it most, like the period before your children become independent adults or you pay off your mortgage, and the term expires when you no longer need it. If you want lifelong coverage, you might consider a permanent life insurance policy instead.

Buying life insurance online

Term life insurance is simple, straightforward, and affordable. With Haven Life, it’s also easy to obtain. You can get a quote and apply for a policy mostly online. Eligible Haven Term policyholders can also get Haven Life Plus, a bonus rider that provides additional perks — think no- and low-cost access to things like a fitness app, and will services — designed to help you live a healthier, more secure life.

Protect your loved ones with term life insurance from Haven Life

Your home is more than a piece of property. It’s a safe haven and place of comfort for you and your loved ones. A term life insurance policy from Haven Life is an easy and affordable way to ensure the people you care about can remain in your home should something unexpected happen.

Visit Haven Life to learn more, get your free quote, and apply for term life insurance today.