Homeowners insurance and life insurance are both forms of financial protection, however they don’t have too much else in common. Both require you to pay a monthly or annual premium, but the two types of insurance policies differ in what they protect, who they protect, how much they cost, and the type of coverage they offer.
Homeowners insurance is a form of property insurance that protects your home, personal property, and assets in the event that the unexpected happens, like if your house catches on fire or a tree falls on your roof. It’s meant to pay for covered losses to your property and protect you from lawsuits or medical bills if a guest gets hurt while in your home, or if you’re responsible for someone else’s injuries away from home, like if your dog bites someone.
Life insurance, on the other hand, is financial protection for your loved ones after you die. You purchase life insurance while you are alive and pay a premium to keep the policy active for the length of the policy term.
If you die during the policy term, your beneficiaries (the people you’ve named in the policy) receive a death benefit and can use the payout however they need. Beneficiaries can use the death benefit as income support and to pay off bills, including any that relate to your home, like your remaining mortgage payments, or your homeowners insurance premiums.
Homeowners insurance vs. life insurance: What you need to know
Homeowners insurance and life insurance don’t typically have too much to do with one another, but beneficiaries can use life insurance payouts to pay off your remaining debts, which may include your home.
There are different types of homeowners insurance policies, but most homeowners have a standard HO-3 policy.
When it comes to life insurance, there are essentially two different categories: term life and permanent life insurance, which includes whole life insurance. Term life insurance, the more common of the two, offers coverage for a set number of years, and you stop paying premiums once you reach the end of the term. If you die within the term period, your beneficiaries receive the payout, but if you outlive the term then the policy ends. This type of life insurance is right for most people — once dependents are grown and mortgages are paid off, you won’t need the same level of financial protection.
Permanent life insurance doesn’t have term limits, but you pay the premiums indefinitely. It is typically unaffordable for most people, but can be a good option for people with specific needs, like people with adult dependents, or large estates.
Below is a breakdown of how homeowners insurance and life insurance work:
Homeowners insurance | Life insurance | |
|---|---|---|
Who does it protect? | The homeowner | The beneficiaries of the policyholder |
Who needs it? | Anyone who owns a property, like a house, condo, apartment, or mobile home | Anyone who has financial obligations in their life or dependants who rely on their income |
What does it cover? | Protects your home and personal belongings from damage and burglary and covers you in the event you are sued for damage or injury to someone else | Covers most types of death. Beneficieries can typically spend the death benefit however they need to, like for everyday expenses, monthly bills, co-signed debts, end of life expenses, and more |
How does it work? | Pay a premium monthly, bi-annually, or annually. After a loss, you can file a claim with your homeowners insurance company and if approved they reimburse you for it | Term life insurance : Pay premiums for a predetermined number of years. If you die within your policy's term limits your beneficiaries receive a death benefit to spend however they need. If you outlive it, the policy ends. Permanent life insurance : Pay premiums indefinitely, and your policy doesn’t expire |
How much does it cost? | The average annual homeowners insurance premium is $1,211, but cost will vary based on how much coverage you buy, the age and build of your home, what ZIP code you live in, and more | Life insurance policy costs vary depending on your age, health, lifestyle choices, and how much coverage you need. Term life insurance policies are cheaper than permanent life insurance policies |
What insurance pays off my mortgage if I die?
If you die before your mortgage is paid off, your beneficiaries can use the death benefit from your life insurance policy to pay off the remainder of your mortgage. Homeowners insurance would not cover the remainder of your mortgage after you die, and your beneficiaries may need to transfer the homeowners policy to their name and continue paying it if they stay in the home. However, homeowners insurance policies can easily be canceled, so they can always end the policy if they sell the home.
Mortgage protection life insurance
Mortgage protection insurance (MPI) is a type of life insurance that is designed to pay off your mortgage if you die. MPI is similar to term life insurance, however the benefactor is typically the mortgage lender, not your loved ones, so the death benefit goes directly to the mortgage lender.
MPI policies also go down over time to match your mortgage payments, meaning the more you pay off your mortgage while you’re alive, the more your MPI death benefit decreases. Because term life insurance can be used to pay off your mortgage, it may be unnecessary to purchase mortgage protection insurance in addition.
→ Read more about mortgage protection insurance here
Can life insurance pay off my homeowners insurance?
Yes, term life insurance can be used to pay homeowners insurance bills. Once the death benefit is paid out, beneficiaries can typically use the money however they see fit, whether that is paying off a mortgage or paying for homeowners insurance. It’s recommended that you notify a homeowners insurance company as soon as possible if the policyholder passes away.
The insurer may switch the policy over to whoever inherits the home. Homeowners insurance is not required by law, but most mortgage lenders will require you to keep a homeowners insurance policy in-force, so the benefactor will likely need to continue paying for it even if they put the house on the market.
