Why matching life insurance to your mortgage matters
If you’re the primary borrower or a household earner, an unexpected death can leave surviving family members with mortgage payments they can’t afford. Buying life insurance sized to your mortgage—often called mortgage protection—helps ensure the home can be paid off or the monthly payment removed as an immediate financial burden.
In my practice advising homeowners, the most common outcome I see for families who plan ahead is a smoother transition: beneficiaries can sell or keep the home without rushing into a distressed sale or default. That practical protection is the goal of calculating life insurance to cover a mortgage.
Sources to consult as you plan: Consumer Financial Protection Bureau guidance on buying life insurance (https://www.consumerfinance.gov) and the National Association of Insurance Commissioners for consumer information (https://www.naic.org). Note: generally, life insurance death benefits are income tax-free under federal law (IRC §101(a)), but there are exceptions—consult the IRS and a tax professional for details.
A step-by-step method to calculate the coverage you need
- Gather current loan documents and statements
- Get your most recent mortgage statement and note the current outstanding principal. That number is the starting point.
- If you have multiple mortgages (first mortgage plus HELOC or second mortgage), include the balances of all secured liens on the home.
- Decide whether you want a payoff or payment-replacement approach
- Payoff approach: choose a death benefit equal to the outstanding mortgage balance (plus closing costs and other one-time expenses). This fully pays off the loan.
- Payment-replacement approach: choose a death benefit that replaces ongoing monthly payments for a period (for example, to cover living expenses while a surviving spouse re-enters the workforce). This often requires a larger total than the outstanding balance if payments are long-term.
- Add reasonable additional housing-related costs
Include items that will matter to survivors immediately:
- Estimated closing costs or mortgage payoff fees (e.g., prepayment penalties, if applicable) — estimate 1%–2% of balance or get an exact number from your servicer.
- Outstanding property taxes or homeowner association dues not escrowed.
- Unpaid homeowner’s insurance premiums or escrow shortfalls.
- Short-term maintenance or relocation costs if the house is likely to be sold.
- Consider other debts and immediate cash needs (optional)
Some homeowners prefer to add funeral expenses, short-term living expense cushions, or other consumer debts to avoid selling the home under pressure. Make these optional add-ons and document why you include them.
- Factor in inflation and rate uncertainty for adjustable-rate mortgages
If you have an adjustable-rate mortgage (ARM), project a conservative estimate of how payments could rise. For long-term planning, consider using the payoff approach plus a buffer (for example, 5%–15%) to account for payment volatility.
- Total the coverage amount and round up
A practical formula many advisors use:
Required coverage = Outstanding mortgage balance + (1–2% payoff/closing buffer) + Escrow shortfall + Short-term housing expenses + Optional survivor cash needs
Round up to the next common policy amount (e.g., $250,000 → $300,000) — this helps avoid small shortfalls and keeps quoting straightforward.
Example calculations (realistic scenarios)
Scenario A — Simple payoff
- Outstanding mortgage: $275,000
- Estimated payoff fees & closing buffer (1%): $2,750
- Escrow shortfall / back taxes: $1,500
Total recommended coverage: $279,250 → purchase a $300,000 policy
Scenario B — Replacement approach for near-term income
- Outstanding mortgage: $300,000
- Replace mortgage payments for 2 years (12 payments of $1,800): $43,200
- Funeral and immediate expenses: $12,000
Total recommended coverage: $355,200 → purchase a $375,000 policy
Scenario C — ARM with uncertainty
- Outstanding mortgage: $350,000
- Buffer for payment increases and volatility (10%): $35,000
Total recommended coverage: $385,000 → purchase a $400,000 policy
These examples demonstrate practical trade-offs between paying the loan off immediately and providing ongoing cash flow.
Types of life insurance to consider for mortgage protection
- Term life insurance: Most homeowners use level-term policies (10, 15, 20, or 30 years) because they are affordable and can be matched to the remaining mortgage term. See our dedicated explanation of [Term Life Insurance](
