Life Insurance FAQ
Does life insurance pay off the mortgage?
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The short answer
Yes. A life insurance death benefit can be used to pay off your mortgage, since your beneficiaries can use the payout for any purpose. Many families buy term coverage sized to at least cover the home loan.
Your beneficiaries decide how to use the payout
A life insurance death benefit is paid to your beneficiaries as a lump sum, and they can use it to pay off the mortgage or for any other need. This lets your family keep the home free and clear.
Size the coverage to your mortgage
A common strategy is a 20-year term policy with a face amount at least equal to your remaining mortgage balance. The term lines up with your loan, and coverage is affordable because term life is the cheapest option.
Term life matches a mortgage well
Since mortgages have a set payoff date, term life is a natural fit. It covers you for the years you carry the loan and costs far less than permanent coverage for the same face amount.
Related questions
Should I get mortgage life insurance or term life?
A term life policy is usually the better value. It pays a fixed benefit your family can use for anything, while mortgage life insurance pays the lender and its cost often does not go down as you pay down the loan.
How much coverage do I need for my mortgage?
Enough to cover your remaining mortgage balance, and often more to protect income and other debts. Many families aim for 10-12x income plus the mortgage.
Does the payout go to the lender?
No. The death benefit goes to your named beneficiary, who decides whether to pay off the mortgage. Only mortgage life insurance, a separate product, pays the lender directly.
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