Life insurance is a valuable tool when it comes to creating a financial safety net for your family. However, as it turns out, it can also put you in a better position when applying for a home loan. This is because lenders appreciate knowing that you’ll be able to pay off your loan even in the unfortunate event of your passing. This is why most people use their assets as collateral to secure a loan, but life insurance can ensure that any debt is paid off and does not pass to your loved ones.

Life Insurance Can Lower Your Interest Rate

While life insurance is not required to buy a home, it can go a long way towards helping you get approved for a loan. In some cases, a bank might even offer you life insurance if you don't have a policy in place to approve you for a home loan. 

Another plus? Having life insurance can lower your interest rate! Lenders often offer lower interest rates to borrowers who have life insurance. This is because life insurance makes borrowers less risky.

Using Your Life Insurance To Cede A Home Loan

If you're having trouble getting a home loan approved, you may be able to use your life insurance to increase your chances of getting approved. This is called ceding your life insurance. When you cede your life insurance, you give the lender the right to claim the death benefit from your policy if you die before the loan is repaid. This can make you a more attractive borrower to lenders because it reduces their risk.

However, there are a few things to keep in mind if you're considering ceding your life insurance. First, you'll need to make sure that you have enough coverage to cover the amount of your loan. Second, you'll need to make sure that you're comfortable with the idea of the lender having access to your death benefit. Finally, you'll need to make sure that you understand the terms of the cession agreement.

The Bottom Line

Having life insurance can help you get approved for a home loan and may even result in a lower interest rate. Still, if you plan on ceding your life insurance, ensure you have adequate coverage so that you can pay off your home loan and still have enough coverage to protect your family’s financial future.

Unsure about how much cover you’d need? Use our handy life insurance calculator to find out and while you’re at it, get in touch for a quick quote. We’d be happy to help you create that all important financial safety set and help you get that house!