The short answer
Business owners often put their home on the line without thinking of it that way: a loan signed personally, a lien, a home equity line used for the company.
This guide shows how to protect the house from both kinds of debt.
Part of our complete guide: Mortgage Protection Insurance: The Complete Guide.
Quick answer
Count business debt secured by your home. Keep personal and business-owned coverage separate. Size coverage to the income your household uses.
MarketView Agency is an independent insurance agency (National Producer Number 18345705).
On this page
Is your home tied to your business debt?
Many small-business loans ask the owner to sign for the debt personally, and some lenders take a lien on the owner's home as extra collateral. If you pass away, your family could face both the mortgage and a business debt secured by the same house.
- List what is secured by your home: the mortgage, a home equity line, and any business loan with a lien.
- Cover the full exposure with personal coverage, or pair a personal policy with business-owned coverage for the loan.
- Keep ownership clear. A policy you own personally pays your family; a business-owned policy pays the business.
Which policy should the business own?
Business owners often need two kinds of coverage, and mixing them up causes problems at claim time.
| Feature | Personal mortgage protection | Business-owned (key person or loan) coverage |
|---|---|---|
| Who owns it | You | The business |
| Who receives the benefit | Your family or trust | The business or the lender |
| What it is for | Paying off the home, family needs | Business debts, continuity, a buyout |
| Premiums paid by | You personally | The business |
A tax professional can explain how premiums and benefits are treated for each, since the rules differ.
Compare rates from several carriers in about two minutes. Free, no obligation.
What your family would lose besides the paycheck
Owners often pay themselves a modest salary and take the rest as distributions, which can make income look smaller on paper than it is. Size coverage to the money your household lives on.
- Include the mortgage and any home-secured business debt.
- Add the household income that comes from the business, not just your salary.
- Consider what happens to the business itself: a buy-sell agreement funded by insurance can give your family cash instead of a business they can't run.
How insurers decide your rate
Every life insurance application goes through underwriting. That is the insurer's review of who you are, how healthy you are and how much risk the policy carries. The result is your rate class, which sets your price.
- Your answers. Health history, medications, tobacco or nicotine use, family history, travel and hobbies.
- Records. Prescription history, a shared database of prior insurance applications, and often your driving record.
- Sometimes an exam. A short visit from a paramedical examiner to check height, weight, blood pressure and lab samples.
- Sometimes medical records. For larger amounts or certain conditions, the insurer may ask your doctor's office for notes.
Insurers do not all weigh these things the same way. One carrier may treat a managed condition, like controlled blood pressure, more favorably than another. That is a big reason to compare several carriers rather than accept the first offer.
Be complete and honest on the application. Policies have a contestability period, usually the first two years, when the insurer can review a claim against what you said when you applied.
How long should the policy last?
The simplest rule: pick a term that lasts at least as long as the years left on your mortgage. Common choices are 15, 20, 25 and 30 years.
- New 30-year loan: a 30-year term usually fits.
- Loan with 18 years left: a 20-year term covers it with a little room.
- Planning to pay it off early: a shorter term can save money, but it is a bet on the payoff date.
If you have children at home, you may also want the coverage to last until they are on their own. That can point to a longer term even if the loan is shorter.
How to get covered in 3 steps
- Check your rate. Pick your state and answer a few quick questions about the coverage you want.
- Compare carriers. A licensed agent compares mortgage protection options from several insurers and explains the trade-offs.
- Apply and get covered. Many applications take one phone call. Coverage starts once the policy is issued and the first premium is paid.
Is mortgage protection right for a business owner?
Often a good fit
- you signed for business debt personally or your home secures business debt.
- your household depends on income from the business.
Maybe not the right fit
- the business already owns coverage that pays all home-secured debt.
- what you need is key person or buy-sell coverage; start with the business plan.