Sam Kaufman, Managing Partner
Insurance buyers are always concerned with insuring their homes, cars and other valuables for their “Replacement Value”. Perhaps, as part of Life Insurance Awareness Month” life insurance advisors should talk to their clients about replacing their “Life Values”.
What could be more important, the loss of your home by fire or the loss of the financial provider or providers that enable the family to live in their home? The answer is evident, but amazingly the primary focus is the financial loss of the property and not the person or persons who are paying the mortgage, electric and taxes.
Mortgage loans normally contain due-on-sale clauses, or “acceleration clauses,” that allow such loans to be made payable upon borrowers’ deaths. By law, a deceased mortgage borrower’s estate must settle the borrower’s debts, including any mortgages. If enough equity exists in a deceased mortgage borrower’s estate to settle the mortgage, the estate’s executor may decide to pay it off. However, deceased mortgage borrowers frequently bequeath their mortgaged homes to inheritors, which is legal and acceptable to do.
Mortgaged homes being bequeathed to heirs don’t necessarily have to be paid off upon their owners’ deaths. Rather, the mortgaged homes of deceased people can be passed to heirs, with the heirs becoming responsible for settling those mortgages. In some cases, the mortgages on homes being passed to relatives of deceased homeowners may even be assumable by those relatives. Until a deceased mortgage borrower’s home is transferred to inheritors, though, the deceased borrower’s estate should continue making mortgage payments.
Mortgage due-on-sale clauses give lenders foreclosure rights when mortgage borrowers die. Deceased mortgage borrowers’ estates or inheritors of mortgaged homes not wanting to pay off existing mortgages can allow foreclosure. However, foreclosure is expensive for lenders and when borrowers die they may search for other solutions with heirs, including mortgage refinancing. Inheritors of mortgaged homes, then, could be given an opportunity to settle those mortgages in some way other than foreclosure.
Sometimes we need to return to basics and what better time than Life Insurance Awareness Month to make people aware of the socio-economic importance of life insurance. Whether it it’s the importance of keeping a home for a family after a death or maintaining continuity in a business, advisors have important function in communicating to their clients the need for life insurance.