Does Homeowners Insurance Cover the Mortgage If You Die?
With a country-wide average yearly premium of $1,173, according to the National Association of Insurance Commissioners, for a homeowner's insurance policy, you would expect the policy to cover anything that could happen to your home. And while these policies provide valuable coverage, they will not pay your mortgage off in case you die. You can purchase additional policies to provide this coverage, but the best way to protect you may be to purchase a term life insurance policy providing money in case you die to be used for any purpose.
Homeowners insurance policies do not pay off any remaining mortgage balances when the holder of the mortgage passes away.
Damage to Your Home
Homeowner's insurance provides coverage to repair or replace your home if an accident or other disaster, such as a hurricane, damages or destroys the structure. Coverage also provides money to replace the personal property inside of your home if it is damaged by a covered event, or stolen. The policy may pay the current cash value of your home and personal property, or it may pay the actual cost to replace anything that is damaged at current values. Any payment amount is reduced by the deductible on the policy at the time of the event.
In addition to coverage against damage, homeowner's insurance policies also cover personal liability, and defend against lawsuits. If someone slips and falls while entering your property, your policy will pay the price to defend you against a lawsuit, and also pay any award in the lawsuit up to the limits of your liability coverage. Personal liability coverage may also cover other damages you incur, such as if you are accused of libel or slander.
Mortgage Life Insurance
Your mortgage company or other insurers, possibly even your homeowner's insurance company, may offer mortgage life insurance as an optional coverage. These policies pay the balance of the mortgage in case the mortgage holder dies. They are known as a decreasing term policy, because as the mortgage value decreases with payments, the policy pays less in case of the death of the insured. These policies can generally be purchased regardless of the health of the homeowner, and usually do not require you to answer health questions or have a physical exam.
Protection in Case of Death
Most experts agree that the best way to provide funds to pay off a mortgage in case you die is to purchase a term life insurance policy. The rates for these policies are relatively inexpensive, considering the amount of coverage that you can purchase. In addition, the funds can be used for other purposes if needed. If you have health concerns that make a term life insurance policy extremely expensive or unavailable, a mortgage life policy may make sense for you.
- Family Protection Center: What is Mortgage Protection Insurance?
- Nationwide: Mortgage Protection Insurance
- The Law Dictionary: Is There a Type of Homeowner’s Insurance That Pays the Policyholder’s Mortgage Upon Death?
- Bankrate: Mortgage Protection Insurance: Should You Buy It?
- Insurance Information Institute: Facts + Statistics: Homeowners and Renters Insurance
Craig Woodman began writing professionally in 2007. Woodman's articles have been published in "Professional Distributor" magazine and in various online publications. He has written extensively on automotive issues, business, personal finance and recreational vehicles. Woodman is pursuing a Bachelor of Science in finance through online education.