After you’ve bought a property, whether that be your personal residence or as an investment, you want to make sure you protect it in case anything does happen. This is assuming you have a mortgage on it.
There’s so many insurance products out there, but for your real estate, there’s typically two main types…
- Mortgage Life Insurance offered by the lender who your mortgage is with
- Personal Life Insurance offered by a third party
Each insurance is different and has different options, so it’s best to understand what it offers prior to adding any coverage.
Typically, Mortgage Life Insurance through the lender isn’t that good…how it works is that the bank is the beneficiary (i.e. they get the money when you die). You make a set payment each month and the payout is the remaining balance of the mortgage. As an example, you have a $300K mortgage and you pay $100 a month in premiums. Each month as you pay your mortgage down, the amount of payout is less, but you’re still paying the $100 a month (i.e. after 5 years, you would have probably paid off at least $25K of your mortgage, so the insurance payout will be $275K, but you’re still paying $100 a month for it). If you die, the bank will get the payout to pay off the remaining balance of the mortgage. Yes, your house will be paid off, but you’ve left a lot of money on the table there.
On the flip side is Personal Life Insurance. Typically you may have this though work at 2x, 3x or more your annual income, but sometimes it’s not enough.
If you had that same $300K mortgage, you would then take out a life insurance policy for the same amount with your spouse/kids (anyone you choose) as your beneficiary. Let’s assume the premium per month is the same at $100. If you die, your beneficiary gets the payout, in this case it’s $300K…tax free. However, if you have paid off your mortgage for the past 5 years and there’s only $275K left on it…you still get $300K from the life insurance. You’ll use $275K to pay off the mortgage and then you’ll have $25K extra to do whatever you like. You technically don’t have to use the insurance money to pay off the mortgage if you don’t want either, it’s up to you…you have more choices.
Insurance is there to make sure you’re protected, so find out what is most beneficial way for you and your family.
For each investment property I have, I add a term life policy incase somethings happens, so my wife and kids don’t have to worry about mortgage payments on those properties and can continue to collect rent.
At the end of the day, get a few options and quotes and see what’s the best for you and your family. Send me an email at firstname.lastname@example.org if you want me to put you in touch with my insurance guy.