Who Pays the Mortgage If You’re Not Here?
Introduction:
Considering I've been in the real estate industry for 20 years starting as a loan processor, co-owned a commercial lending company and rehab homes, I've seen and heard some crazy stories. I try to keep in touch with my buyers and sellers to see how they are doing. Some of my clients are doing great and ready to retire. Some started families and didn't realize the cost of keeping up with the mortgage. Some have started business to create retirement funds.
But what happens if the couple decides to have children and then the wife stays home because she wants to raise her kids and daycare is too expensive? Who pays the mortgage if the husband has a stoke and he can't work?
If they are lucky, they probably have health insurance through their work and probably paid time off. It will pay, hopefully, most of the doctor bills. But how are you going to keep up with the mortgage, bills, real estate taxes, car loan, car insurance, and all the other bills? Who or what is protecting your income if something crazy happens to you?
God forbid, the husband dies in a car accident, how is the wife going to pay the mortgage with no income? Questions that no one thinks about or wants to think about until it's too late. While the wife is mourning her husband, planning the funeral, and raising her kids, now she has to worry about how to pay the mortgage, bills, and real estate taxes.
A thought that you never want to think about, or you don't think about until it happens to you. Everyone is always living day by day. Working. Taking care of the kids. Trying to do the best they can by having an enjoyable life. But tragedy can happen. It happens all around us and to us. We have to make decisions that can be life changing, not just for us, but for our family.
We are always insuring something and everything. We have homeowners' insurance; lenders have mortgage protection insurance (MPI) that you may pay if you don't put 20% down. We insure our cars, health insurance, pets, and even our appliances. But what about protecting your income? What about you? So, what happens?
“Who Pays the Mortgage If You’re Not Here?”
The average family carries a 15 to 30 years of mortgage debt.
The average family usually gets a 30-year mortgage. Most buyers don't even buy their home until their 30's. So, right around retirement, you pay off your home. You also then have less income because you are no longer have a working income. You are constantly keeping yourself alive, healthy, and working to pay your mortgage and bills. You're lucky if you can save for a rainy day and college tuition for your kids.
What happens if the primary income earner passes?
What happens if the only person that makes an income, the husband, dies in a car accident? How the heck is the wife, mom of two, suppose to support herself, her kids, and her home? I'm assuming everyone thinks it will just pan out. Or she will get a job. Or there will be a GoFundMe and she will live happily ever after.
In a fairy tale land, I'm sure this could happen. But it's not that easy. Let's say the wife is capable of getting a job. It's not just a snap of the fingers that she has a job. After all the funeral planning, figuring out all the bills, and figuring out a new life. She has to start the process of looking for a job: resumes, education, interviews, and usually the two weeks hold of paycheck. You know the drill. Or I'm sure you're thinking that she can get a waitressing job. There are children involved. There's a schedule. There are expensive daycares that are only open during the day. Schools that the parents need to get them to. Pick them up. Their activities. Being a mom is more than a full-time job. I could write another blog on this topic. But you see where I'm going with this?
So, what does happen if the primary income earner passes? Money collection from family and friends? Without income protection, many families face serious financial strain and may be forced to sell the home. The widower and her children move into a family or friend's home. It's not the perfect picture life you considered, is it?
👉 Disability is more likely than death during working years.
How do we protect the widowed wife?
I'm sure you're thinking, "yeah, how the heck do you do that?"
Well, I'm going to tell you how. Besides being a real estate agent, I'm also a licensed insurance agent. Actually, my first grown up job was working at an insurance company. I stayed in the insurance industry on and off since my 20's. I even worked for a duck company. Yes, the quacking on commercials triggers me.
So, how do you protect your mortgage if the breadwinner gets really sick or passes away?
It is called Term Insurance, or what some call, Mortgage Protection. Many people think it's homeowners' insurance or like a home warranty. Mortgage protection is different. It protects you and your income if something were to happen to you.
Homeowners insurance protects the home. It is required by lenders so it something happens like a fire or major plumbing leak, then they don't have to come out of pocket for tons of money. So, lenders will make you purchase homeowners' insurance by paying a small premium amount every month. Who wants to come out of pocket to pay for the whole loss?
Side note: True story. An investor rehabbing a home had a mortgage from a private lender. That private lender did not make the investor have homeowners' insurance. Guess what? There was a fire. It damaged most of the home and has to be rehabbed again. The investor still has to pay back the mortgage and now has to have the funds to fix everything. This is why we pay for insurance.
Home warranties are yearly plans that protect just the mechanicals, plumbing, electrical, roofing, and appliances. They protect the stuff that might break down and less out of pocket cost. Some buyer's like to have home warranties because if their appliances break down, then they can get it fixed than fully replaced. There is usually a service charge for someone to look at anything that is broken.
Now that we got those differences out of the way, now what is exactly mortgage protection? Let's go with our current example. We have a married couple with two small children. The husband is the only income earner. The wife is a stay home mom. He has a stroke. What do you do if you can't go back to work for a while? Or ever?
What If You Don’t Die — But Can’t Work?
Most families focus on life insurance, but long-term disability is more common than early death.
If the primary income earner:
Has a stroke
Develops cancer
Is injured in an accident
Cannot return to work for months or years
Who covers the mortgage then?
Some mortgage protection policies include living benefits, which allow access to funds while you’re still alive if diagnosed with a critical, chronic, or terminal illness.
Mortgage Protection Insurance
Protecting Your Home and Family
Mortgage Protection Insurance is a type of term life insurance designed to help pay off or cover your mortgage if something unexpected happens to you.
How It Works:
Coverage amount is often based on your mortgage balance or extra to leave behind for loved ones.
Typically written as term life (10, 20, or 30 years). After that term, it ends.
Benefits are paid directly to your loved ones (beneficiary) tax free - not to the lender.
Can include living benefits if you become seriously ill, including Critical, Chronic and Terminal Illness Accelerated Benefits (depending on policy)
Best For:
Homeowners with a mortgage
Families who rely on your income to pay monthly housing expenses
Buyers who want peace of mind that their family won’t lose the home
Example scenario:
A 38-year-old parent with a $325,000 mortgage dies unexpectedly. A $500,000 20-year term policy could eliminate the mortgage or pay the mortgage monthly to provide breathing room. It can also leave extra money for your loved ones to live on.
Conclusion:
I enjoy helping out my buyers buying their dream home and helping them getting mortgage protection to protect their income and family. Insurance is always something you don't want to pay for, but you need. Mortgage protection is paid the exact amount of coverage that you applied for. For example, if you get a mortgage protection policy for $250,000 (what you owe on your home) with 20 years left, and you pay off the loan early. The insurance amount will still be $250,000.
The amount is paid directly to your beneficiary if you pass and is not given to the lender. It also is tax free. The coverage can be used to pay the mortgage in full, or monthly including utilities, homeowners' insurance, real estate taxes, and college tuition. It's for life's bills. The policy can be utilized with living benefits including Critical, Chronic and Terminal Illness Accelerated Benefits (depending on policy and carrier.) Life insurance quotes are based on age and your health.
Many homeowners across Illinois assume their family will “figure it out” if something happens — but a plan brings peace of mind.
👉 Want to know how much coverage would actually protect your home? Let’s calculate it.
Reach out to me at https://jencorso.com/insurance
The Author is Jennifer Corso - Realtor and Insurance Agent. This article is for educational purposes and based on Jennifer Corso’s professional experience.