Do I Need Life Insurance to Buy a Home?

The seemingly endless list of considerations to make when buying a home can make it a daunting experience. With the average price of a house across the U.S. sitting in the $200,000 range, the cost alone can be tough to stomach. Standard mortgages require a down payment of around 20%. That’s $40,000 for a $200,000 property.

Granted, there are a number of programs that can lower this number, but when additional expenses such as legal fees and closing costs enter the picture, most of us will still need close to $20,000 in cash. An increasing number of people are looking into using life insurance as a source of money for the down payment.

With this in mind, let’s take a look at the correlation between life insurance and buying a home

Is it Mandatory to Have Life Insurance When Buying a Home?

Unless your bond originator or bank requires it, you don’t legally need life insurance to buy a home. However, it’s a popular opinion that having life insurance when buying a home is a necessary means of safeguarding your family’s financial future.

Why You Should get Life Insurance

Life insurance is used to cover your debts in the event of your untimely demise, thus preventing hefty bills from falling onto your loved ones. With most policies, your life insurance will pay out a lump sum to cover the outstanding amount that you owe for your home come the time that you’re no longer around to pay for it.
That said, it’s up to you to find the right insurer for this purpose, as life insurance fees and terms tend to vary between different providers. When searching for life insurance and burial insurance, be sure to take a moment to learn more about the best companies out there today, to secure your family’s future the best way possible.

Using Life Insurance to pay for a Home

Some forms of life insurance include a cash reserve that builds up over time. In order to gain access to this money, you’ll either need to do it through a partial surrender of your policy or in the form of a loan. This process is possible with universal, whole, and variable life insurance policies.
Because the value of a life insurance policy belongs to its owner, you’re free to do with it whatever you see fit. There are often certain restrictions when it comes to just how much you can take out in a loan, but you will usually have access to around 90% of the total.

How to use Your Policy to buy a Home

If you want to maintain your life insurance coverage, you’ll have to take out a loan. Naturally, this will incur a certain amount of interest. Alternatively, you can do a partial surrender of your policy, which reduces your death benefit by the amount you take out. In dire situations, you can fully surrender your policy and gain access to the total cash value.


Depending on your financial situation and the type of policy you have, there are a number of approaches you can take here. Take a good look at your finances and decide whether it would be wise to tap into your policy to afford a home or simply keep it to safeguard your family.
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