So you’re house hunting. Congratulations! Home ownership is an adventure – with many rewards and challenges along the way. But, before you step into acquiring 30 years of debt (i.e. getting a mortgage), you need to get these things settled first. Said another way:
Don’t even think about getting a mortgage before you get these two things!
I’ve talked about the awesomeness that is disability insurance before. So, instead of reviewing it, I’ll defer to my favorite fictional Deloitte employee to illustrate the importance of disability insurance:
Joe Danger, CPA has saved up a nice chunk of change for a down payment on his first home. Joe is now a homeowner. Congratulations, Joe!
While unloading the moving van, Joe trips and falls. His large box of Star Wars paraphernalia spills open. Joe’s replica light saber slices Joe’s right hand off – just like in the movies! Unfortunately, Joe does not live in an age where he can get a robotic replacement hand. Without a hand, Joe can’t do his job at Deloitte! In short, Joe’s got a brand new mortgage and no money to pay his new monthly mortgage bill!
Had Joe ponied up for a disability insurance policy, he could rest easy knowing that at least his mandatory expenses (like food & housing) would be provided for. Without a private disability policy, Joe’s employer-provided disability insurance policy pays him just a small portion of his previous salary. This small benefit payment is certainly not enough to make ends meet – and certainly does not provide as much income as a private disability policy would pay.
Here is your opportunity to learn from Joe’s mistake. Before you sign up for 30 years of debt payments (i.e. a mortgage), make sure that you have a robust disability policy in place. If you’re unsure if the disability policy provided by your employer is any good (it may not be), have the policy reviewed by a fee-only financial advisor.
Life Insurance for Your Family
If you’re single without any dependents (kids, parents, or other family members depending on you to earn a living), then you can skip this section. This is because not everyone needs life insurance – just those who have people financially depending on them.
How Much Life Insurance Should I Get? Great question. The idea here is to pay off your mortgage in the event of your untimely passing. This way your loved ones won’t get stuck having to pay the mortgage bill solo. Therefore, you only need about as much insurance coverage as the balance of your new mortgage.
What Kind of Life Insurance Should I Get? Another great question. Get a term life insurance policy. Match the term of the policy to the lenghth of the mortgage; i.e. if you have a 30-year mortgage, get a 30-year term policy. Avoid any permanent life insurance products, like whole life, universal life, variable life, variable universal life, etc.
Where Should I Buy My Insurance? Shop the market. You can get quotes from various companies at sites like Quotacy.com, PolicyGenius.com, 1stOptionInsurance.com, Insure.com, AccuQuote.com, or QualityTermLife.com. (Thanks to Clark Howard for the suggestions.) Your bank or mortgage insurance company may offer you something called mortgage insurance – which is the bank’s version of heavily marked-up life insurance. Skip the bank’s suggestion and shop the market for the most competitive price.
What are two things that you need before you get a mortgage?
• Disability Insurance
• Life Insurance
Now go get ’em!