Syndicated Financial Columnist, Host of the weekly talk show Steve Savant's Money, the Name of the Game, Scottsdale Arizona
A mortgage is generally the largest debt you'll ever have on the one of the largest real estate asset you'll ever own. Most banking institutions require life insurance for those depositing a small down payment. The rule of thumb on down payments that requires life insurance is under 20% of the value of the home.
No, life insurance is not usually mandatory for a mortgage.
When PMI (private mortgage insurance) is required due to a low down payment, that is not the same as Life Insurance. PMI exists to protect the lender, and only pays the lender the amount that is owed them. It has a high cost compared to regular Life Insurance.
While having regular Life Insurance is a great way to cover a mortgage (it goes to your beneficiary so they can pay off the house, put it away and live off the interest, or whatever works best), lenders do not usually require it. If you have put enough down, they are in OK shape just taking your house if you die. All the more reason to get life insurance.
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When PMI (private mortgage insurance) is required due to a low down payment, that is not the same as Life Insurance. PMI exists to protect the lender, and only pays the lender the amount that is owed them. It has a high cost compared to regular Life Insurance.
While having regular Life Insurance is a great way to cover a mortgage (it goes to your beneficiary so they can pay off the house, put it away and live off the interest, or whatever works best), lenders do not usually require it. If you have put enough down, they are in OK shape just taking your house if you die. All the more reason to get life insurance.