Why term life insurance matters when buying a home? Term life insurance, often called an ORV (overlijdensrisicoverzekering), offers financial security for your partner or surviving family members.

If either partner passes away, this type of insurance enables the surviving party to handle their monthly expenses and maintain ownership of their residence.

Life insurance vs. mortgage insurance

Of course, you may have already heard about two kinds of insurance that can help you ease financial burdens for your loved ones: life insurance and mortgage insurance. What sets them apart, and why is having life-term insurance a smarter choice for paying off your mortgage?

Term life insurance explained

Mortgage life insurance ( Hypotheekbescherming) is an extra insurance you can get when you get a mortgage from your bank. This insurance is linked to your mortgage, and you pay for it every month, your premium. The premium depends on your age, the amount of mortgage you have insured, and the duration of the insurance. If you pass away and there is a remaining mortgage, the insurance company pays off the mortgage (for the insured amount). This way, your family can keep the house with manageable monthly payments or sell the house without having to worry about remaining debt.
Term life insurance (Overlijdensrisicoverzekering) is a policy offered by insurance companies which you can purchase separately. You can choose the duration of the insurance, which is often in the range of 1-30 years, and you decide how much coverage you want. Typically, people choose coverage based on their financial responsibilities: mortgage payments, living expenses, the cost of raising their children, savings for future goals, etc. If you pass away while the policy is active, the insurance company pays the coverage amount (the death benefit) to your beneficiary, usually your partner or children.

Both term life insurance and mortgage life insurance serve the purpose of settling (part of) your mortgage. However, in the case of mortgage life insurance, the insurance payment is automatically used to repay (part of) your mortgage. With the term life insurance, the beneficiaries receive the insurance payment. In this case, the beneficiaries have more flexibility and can use the insurance money for whatever they want, for instance, to cover monthly expenses, including mortgage payments.

Purchasing a home with a partner or family

If you are purchasing a home with your partner, it's very important to understand your financial situation for the long term. What are your future plans? Is this your forever home? Or do you want to move to a larger or smaller place later?
Another topic is your retirement. Do you have your preferred income in (state) pension at retirement, and what is the expected extent of your savings?

You can arrange a cohabitation contract ( samenlevings contract) at the notary together with your partner. With this contract, you draw up agreements about how you divide costs and how to split the mortgage and potential profit in the situation of separation. The cohabitation contract can be required to benefit from things like partner pension.

Purchasing a home on your own

If you're buying a house alone, consider what happens if you pass away. Can your family sell the house to repay the mortgage? Or will they be stuck with a big debt?

If you have kids who rely on you, it's important to consider where they will live if something happens to you. Is there a way for them to stay in the house? Having term life insurance with your mortgage can help.

Why should you consider life insurance?

Imagine a scenario where you and your partner jointly took out a mortgage. After a few years, an unfortunate event has occurred: your partner has passed away.

Now, you are faced with an outstanding mortgage. It's important to realize that the mortgage responsibility doesn't change after a partner's passing.

If your surviving loved ones can't manage these financial duties, selling the house might be the only option. Dealing with the emotional weight of loss is already tough; adding financial stress makes it even harder.

It is advised to have term life insurance to protect against financial difficulties. This insurance covers this risk, ensuring that the surviving party is financially shielded from the consequences of death.

How does term life insurance protect you?

Life insurance means that if a death occurs before a specified date, the insurance policy provides a financial payout to the surviving spouse or family members. This payout helps them cover their recurring monthly expenses.