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Life insurance policies are available for children and are often marketed as paying out a death benefit if the child were to pass away as well as potentially providing a savings vehicle for the insured.

It’s a lot more comfortable to contemplate these policies funding, say, a child’s education than handling expenses at the time of death. But both are facets of these products. In addition, these policies can help prove a child’s insurability later in life. Let’s take a closer look if this coverage might be right for your family.

What Is Child Life Insurance?

Life insurance for children is similar to a policy for an adult. If premiums are paid regularly, then there’s the guarantee of a death benefit if the child dies. A parent, legal guardian, or grandparent takes out the policy (making them the policyholder). This person can be the beneficiary who would receive the death benefit, if applicable, but they don’t have to be.

Before getting into more detail about policies for children, here’s a brief overview of the two types of life insurance: term and permanent. Each is available for children as well as adults.

Term Life Insurance

As the name implies, term life insurance comes with a pre-determined term, often 10, 20, or 30 years. If the insured person dies within that time frame, then a death benefit is paid out to beneficiaries (people designated to receive those funds). At the end of the term, the policy may be able to be renewed, allowed to lapse, or converted into permanent life insurance. If the insured is still alive at the end of the term (and we hope they are), there is not a refund of the premiums paid. The service was there waiting but wasn’t tapped.

For a child, this would typically be an add-on to a parent’s insurance policy. It would be a death benefit-only policy, but it might be able to be converted into an adult policy when the insured reaches adulthood.


💡 Quick Tip: Term life insurance coverage can range from $100K to $8 million. As your life changes, you can increase or decrease your coverage.

Permanent Life Insurance

Unlike a term policy, permanent life insurance doesn’t expire as long as premiums are paid. Whenever the insured dies, a death benefit is paid. These plans also involve a savings vehicle, in which part of the premiums paid go into a cash account which can later be tapped or borrowed against. Premiums are typically higher than term life insurance (often several multiples of the term life insurance price).

When getting this kind of policy for a child, yes, there’s the death benefit for a worst-case scenario, but there’s also a component that builds a savings account, which is like a gift to the child. When the insured individual reaches adulthood (typically at 18 or 21 years of age, these policies often allow the now-adult to either take the policy’s cash value or continue payments and coverage.

How Does Life Insurance for Children Work?

The adult who plans to take out the policy will fill out an application. There isn’t a medical exam involved like there can be for adults, which streamlines the process.

Life insurance policies for children are often permanent life policies, meaning coverage can last their entire lives if premiums are kept up. Premiums stay the same over the lifetime of the policy, and part of the premium is invested and becomes a cash value that can be withdrawn during the child’s life. These are usually whole life policies, meaning the cash earns a fixed rate of interest.

Check the parameters of a policy that you’re considering buying. Many allow you to buy one for a child who is 17 years old or younger, although some policies won’t go up to age 17. The policyholder commonly transfers the policy to the child when they become adults, but this can be done at any time and some policies automatically transfer into the child’s name at a designated time.

For term life insurance for kids, an option is to add a rider (an optional add-on) to your own term life insurance policy. This can be an affordable option, and one rider may cover all of your children in incremental amounts. The child would be insured to adulthood, at which point the policy would lapse or could be extended by the now-grown child, if they assume paying the premium.

When Does Life Insurance for Kids Make Sense?

Here are four reasons why you might decide to buy life insurance for kids include:

•   Investment purposes

•   Because of health issues or concerns

•   To enhance future insurability

•   In case the worst happens

Here’s more about each.

Investment Purposes

As premiums are paid, the cash value of a whole life policy (a kind of permanent insurance) gradually increases. When your child takes over the life insurance policy, they can surrender — or cancel — it and collect the cash value.

They might choose to use it as collateral for a loan. Or they could keep paying for the policy, which will continue to increase the cash value. If this is your primary motivation, you may want to consider whether this goal is better served by another vehicle, such as a 529 savings account for college costs).

Health Issues or Concerns

If a child is born with health issues or your family has a significant, genetically determined health condition, having a life insurance policy may give you more of a sense of security.

Enhance Insurability

When purchasing a life insurance policy for a child, you are ensuring they have some insurance if they have a major health-altering diagnosis during the term of the insurance. There may be the possibility of extending this coverage.

The Worst Happens

Nobody likes to think about losing a child. If this traumatic event does occur, life insurance will help to cover funeral expenses without being subject to income tax. This can help to eliminate the financial worry of funeral costs and allow you to grieve without this concern. The policy may also cover therapy in this worst-case scenario and/or loss of wages if you were to take a leave of absence from work in the aftermath of this situation.

Recommended: Life Insurance Definitions

Benefits of Child Life Insurance

What you’ve just read outlines some of the reasons why it can make sense to buy life insurance for kids. It can serve as an investment vehicle; provide security if health is a concern; boost future insurability, and cover expenses if the worst situation happens.

Here are some other benefits to consider:

•   Life insurance for children tends to be very affordable. The younger a child is when you purchase the policy, the lower the premium.

•   With whole and term life insurance, premiums remain the same, guaranteed, as long as payments continue being made.

•   With a guaranteed insurability rider on the policy, more coverage can be purchased for that child without the need to answer health questions. This is true even when they’re adults depending on the policy type.

•   If the child later accesses the cash value in the policy, they can use the money for their own unique needs — whether that’s for college tuition, a wedding, a car, or house.

Recommended: 8 Popular Types of Life Insurance for Any Age

How Much Is Life Insurance for Children?

Premiums are based upon the amount of the policy and the age of the child when the policy is first taken out. In some cases, this may be as young as birth or 14 days. Price varies based on gender.

Coverage amounts are typically much lower than for a policy that insures an adult. After all, the goal here isn’t to replace the loss of earning power. Instead, the limits usually range from $10,000 to $100,000, but some companies may allow more than $100,000. At the time of writing this post, a child who is four years old or younger can often be insured for a $10,000 policy for under $5 a month, and a $50,000 one for under $20 a month.

Prices increase incrementally as the child ages. By the time that they’re ages 15 to 17, a $10,000 policy may be closer to $8 per month and a $50,000 one about $35 monthly.


💡 Quick Tip: With life insurance, one size does not fit all. Policies can and should be tailored to fit your specific needs.

The Takeaway

Child life insurance allows parents, legal guardians, and grandparents to apply and pay for a policy on behalf of a child. While a child doesn’t have earning power you are seeking to protect, there are benefits to this kind of policy, including creating a savings vehicle for the child. Take a careful look at the insurance options and your family’s financial goals to determine if this is the best path for you.

SoFi has partnered with Ladder to offer competitive term life insurance policies that are quick to set up and easy to understand. Apply in just minutes and get an instant decision. As your circumstances change, you can update or cancel your policy with no fees and no hassles.

Explore your life insurance options with SoFi Protect.

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Photo credit: iStock/FatCamera

Coverage and pricing is subject to eligibility and underwriting criteria.
Ladder Insurance Services, LLC (CA license # OK22568; AR license # 3000140372) distributes term life insurance products issued by multiple insurers- for further details see ladderlife.com. All insurance products are governed by the terms set forth in the applicable insurance policy. Each insurer has financial responsibility for its own products.
Ladder, SoFi and SoFi Agency are separate, independent entities and are not responsible for the financial condition, business, or legal obligations of the other, SoFi Technologies, Inc. (SoFi) and SoFi Insurance Agency, LLC (SoFi Agency) do not issue, underwrite insurance or pay claims under LadderlifeTM policies. SoFi is compensated by Ladder for each issued term life policy.
Ladder offers coverage to people who are between the ages of 20 and 60 as of their nearest birthday. Your current age plus the term length cannot exceed 70 years.
All services from Ladder Insurance Services, LLC are their own. Once you reach Ladder, SoFi is not involved and has no control over the products or services involved. The Ladder service is limited to documents and does not provide legal advice. Individual circumstances are unique and using documents provided is not a substitute for obtaining legal advice.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Auto Insurance: Must have a valid driver’s license. Not available in all states.
Home and Renters Insurance: Insurance not available in all states.
Experian is a registered trademark of Experian.
SoFi Insurance Agency, LLC. (“”SoFi””) is compensated by Experian for each customer who purchases a policy through the SoFi-Experian partnership.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Estate planning and creating a will both involve an uncomfortable topic – thinking about what will happen to your money when you die – but they are separate concepts. Broadly speaking, a will is a specific legal document stipulating exactly how your assets will be distributed on your death and who will care for any dependents. Creating that document is what you may hear referred to as will planning.

Estate planning, on the other hand, is an umbrella term that covers all aspects of end of life documentation and decision making, which can include a will. Estate planning also allows you to say how you want your assets divided after your death and can help you transfer those assets in the most tax-advantageous way possible for your loved ones.

End-of-life documents, including power of attorney and living will forms, are often created as part of the estate planning process. These help ensure that your wishes are followed, even if you are medically incapacitated. (You can also access these as part of will planning; we’ll cover that in a minute.)

Creating a will and estate planning may sound complicated, but in some cases, they can be done relatively quickly, often using online templates. In other cases, it may be advisable to have an attorney manage the process.

What Is Will Planning?

Writing a will usually refers to a very specific task: A will details where you want your assets to go at your death, and who you would like to serve as guardian of your minor children. If you have pets, it may also spell out who will care for them and how. Additionally, a will names an executor. This is the person you are putting in charge of distributing your assets to the right individuals or charities.

In most cases, you’ll be creating what is called a testamentary will, which is signed in the presence of witnesses. This is often considered a good way to protect your decision against challenges from family members and/or business colleagues after you’re gone. While you can write this kind of will yourself, you may want to have it prepared by an attorney who specializes in trusts and estates, to ensure that it complies with your state’s laws. Or look for an online business that customizes its work to your location.

When you are creating a will, you may look into preparing other related documents that are usually part of estate planning. For example, you may be able to add a power of attorney form and a medical directive or living will.

Together, these documents spell out who can handle matters on your behalf if you were to come mentally or physically incapacitated. If you aren’t planning on pursuing estate planning, these are important documents to complete when creating your will. (Even young people have sudden illnesses and accidents, so these forms are an important part of adulthood.)

Many online will templates provide for these additional documents, so that your bases are covered if the worst were to happen. Creating a legal will can cost anywhere from $0 to hundreds or thousands of dollars, depending on whether you do it yourself or if you work with an attorney.

Even if you die with a will in place, it’s likely that the document will go through probate — the legal process in which an executor to the will is formally named and assets are distributed to the beneficiaries you have named in your will. Yes, there are nightmare stories about the probate process, but don’t get too stressed about it. In general, if an executor (an individual appointed to administer the last will and testament of a deceased person) is named in your will and your will is legally valid, the probate process can be relatively streamlined.


💡 Quick Tip: We all know it’s good to have a will in place, but who has the time? These days, you can create a complete and customized estate plan online in as little as 15 minutes.

What Is Estate Planning?

Estate planning can be the umbrella term for all end-of-life decision making, but it’s more often used to describe your plan for how you want your property divided when you die and the financial implications of those decisions. It can involve creating the following:

•   Will/trusts to smooth the transfer of assets/property

•   Durable and healthcare power of attorney

•   Beneficiary designations

•   Guardianship designations

Estate planning aims to make sure that your loved ones receive the maximum proceeds possible from your estate.

Often, estate planning is done with the oversight of an attorney, who can provide strategies for how to minimize tax burdens for your beneficiaries when you die.

Recommended: What Happens If You Die Without a Will?

Who Needs an Estate Plan?

When people talk about estate planning, they may be referring to the decision to create a trust. Trusts can be especially beneficial for high-net worth individuals who may be worried about tax implications of their heirs inheriting their belongings. But they also have a role in less wealthy families. If your clan has a beloved lake house that you want to stay in the family, for future generations, a trust might be a possibility to investigate.

These arrangements allow a third party, or trustee, to hold assets on behalf of a beneficiary or beneficiaries and can help avoid the time-consuming process of probate. Trusts may also be beneficial for people who have dependents in their care, as well as those who may worry about how their beneficiaries will spend the money bequeathed to them.

There are two other scenarios in which a trust can be very helpful:

•   People with a pet who have a specific plan of how they wish the pet to be cared for after their death. (Pets can’t own property, so leaving money to pets in a will can cause a legal headache. This can be sidestepped by creating a trust for Fluffy’s care.)

•   Those who want to minimize ambiguity in who gets what, which could be helpful in the case of people who have had multiple marriages.

The most common type of trust within an estate plan is called a revocable living trust. This may also be called a living trust because, while you are alive, you can name yourself a trustee and have flexibility to make changes. These can often be created online, although an attorney can certainly be involved, guiding the process and answering any questions.

In setting up a trust, you will name a trustee. This is a person in charge of overseeing the trust according to the parameters you state. Unlike a will, where an executor will ensure beneficiaries get the property stated, a trust allows the creator to put guardrails around gifts, and for the trustee to ensure the guardrails are followed.

For example, you can specify in a trust that certain assets do not go to a beneficiary until they reach a certain age or milestone.

Recommended: Does Net Worth Include Home Equity?

Taking the Next Step in Will Writing and Estate Planning

There’s a lot of overlap between “creating a will” and “creating an estate plan,” and that ambiguity can lead to difficulty beginning the process. But creating a legal will, including guardianship documents for minor children, can be a good first step. Also, make sure you have power of attorney forms in place and any advanced directives; these can guide decision-making on your behalf if you were ever mentally or physically incapacitated.

Then, you can have peace of mind and can “ladder up” to creating a more complex plan that encompasses more “what ifs.” Estate planning, with the possibility of trusts and transfers, can complete your end-of-life planning.


💡 Quick Tip: It’s recommended that you update your will every 3-5 years, and after any major life event. With online estate planning, changes can be made in just a few minutes — no attorney required.

The Takeaway

Creating a will and an estate plan are two different ways to address your end of life wishes. A will is a document that says who inherits what and how you want minors, dependents, and even pets cared for. It may have additional documents that spell out your wishes if you become incapacitated.

An estate plan, however, is a more comprehensive way to spell out the allocation of your assets after you die. It typically includes finding ways to make the process run more smoothly, quickly, and with lower tax payments for your beneficiaries. Starting the process now, whether with online templates or by consulting with an attorney, is important. While no one likes to think about worst-case scenarios, the sooner you get the paperwork done, the better protected your loved ones will be.

When you want to make things easier on your loved ones in the future, SoFi can help. We partnered with Trust & Will, the leading online estate planning platform, to give our members 15% off their trust, will, or guardianship. The forms are fast, secure, and easy to use.

Create a complete and customized estate plan in as little as 15 minutes.

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Photo credit: iStock/AnnaStills

Coverage and pricing is subject to eligibility and underwriting criteria.
Ladder Insurance Services, LLC (CA license # OK22568; AR license # 3000140372) distributes term life insurance products issued by multiple insurers- for further details see ladderlife.com. All insurance products are governed by the terms set forth in the applicable insurance policy. Each insurer has financial responsibility for its own products.
Ladder, SoFi and SoFi Agency are separate, independent entities and are not responsible for the financial condition, business, or legal obligations of the other, SoFi Technologies, Inc. (SoFi) and SoFi Insurance Agency, LLC (SoFi Agency) do not issue, underwrite insurance or pay claims under LadderlifeTM policies. SoFi is compensated by Ladder for each issued term life policy.
Ladder offers coverage to people who are between the ages of 20 and 60 as of their nearest birthday. Your current age plus the term length cannot exceed 70 years.
All services from Ladder Insurance Services, LLC are their own. Once you reach Ladder, SoFi is not involved and has no control over the products or services involved. The Ladder service is limited to documents and does not provide legal advice. Individual circumstances are unique and using documents provided is not a substitute for obtaining legal advice.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Auto Insurance: Must have a valid driver’s license. Not available in all states.
Home and Renters Insurance: Insurance not available in all states.
Experian is a registered trademark of Experian.
SoFi Insurance Agency, LLC. (“”SoFi””) is compensated by Experian for each customer who purchases a policy through the SoFi-Experian partnership.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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According to the latest data, the average cost of homeowners insurance in the United States is $1,754 per year. That said, insurance premiums can vary widely by geography depending on how prone your area is to storms, wildfires, or other natural disasters, as well as factors like the crime rate.

If you’re buying a home, it’s a good idea to buy homeowners insurance coverage to ensure that you and your assets are covered in the event of a worst-case situation. They do happen! Many financial advisors suggest that anywhere from 25% to 40% of your net worth could be tied up in your home, and for some, that proportion can reach as high as 70%.

Let’s pause for a minute and think about what this could mean. Taking an uninsured or underinsured loss on 25% to 70% of your net worth is a hit that few Americans can afford. So it makes sense to protect yourself and shop for the right homeowners insurance policy. Here’s a look at how much you can expect to pay in your area, and why.

Average Cost of Homeowners Insurance by State

Here’s an alphabetical list of the average cost of home insurance premiums by state, per a 2023 Policygenius analysis of home insurance premiums. It will give you a good ballpark of what you might pay for your annual homeowners insurance premium.

State	Annual premium	Monthly premium
Alabama	$1,355	$113
Alaska	$1,940	$162
Arizona	$1,667	$139
Arkansas	$2,838	$237
California	$1,383	$115
Colorado	$2,322	$194
Connecticut	$1,329	$111
Delaware	$918	$77
Florida	$2,288	$191
Georgia	$1,950	$163
Hawaii	$486	$41
Idaho	$1,258	$105
Illinois	$1,720	$143
Indiana	$1,668	$139
Iowa	$1,686	$141
Kansas	$2,981	$248
Kentucky	$2,565	$214
Louisiana	$2,452	$204
Maine	$1,020	$85
Maryland	$1,539	$128
Massachusetts	$1,275	$106
Michigan	$1,422	$119
Minnesota	$1,829	$152
Mississippi	$2,624	$219
Missouri	$2,579	$215
Montana	$2,140	$178
Nebraska	$3,510	$293
Nevada	$1,191	$99
New Hampshire	$953	$79
New Jersey	$886	$74
New Mexico	$1,681	$140
New York	$1,114	$93
North Carolina	$1,545	$129
North Dakota	$1,884	$157
Ohio	$1,236	$103
Oklahoma	$4,161	$347
Oregon	$869	$72
Pennsylvania	$1,101	$92
Rhode Island	$1,303	$109
South Carolina	$1,653	$138
South Dakota	$311	$26
Tennessee	$2,095	$175
Texas	$2,919	$243
Utah	$894	$75
Vermont	$865	$72
Virginia	$1,277	$106
Washington	$1,159	$97
West Virginia	$1,426	$119
Wisconsin	$1,150	$96
Wyoming	$1,547	$129
United States Average	$1,754	$146

Source: Policygenius

You may notice that geography and climate play a role in rates. The states in what is known as Tornado Alley, where storms are more likely, have higher rates. You’ll see that Nebraska, Arkansas, and Kansas, for instance, have higher-priced premiums, reflecting the elevated risk of damage to a home there. Those with homes in coastal areas can also expect higher premiums.

Conversely, those who live in states and towns with low risk of punishing storms will enjoy lower rates for their homeowners insurance.


💡 Quick Tip: A basic homeowners insurance plan doesn’t cover floods, earthquakes, or sinkholes. If you live in an area prone to natural disasters, you may want to look into supplemental coverage.

Average Cost of Homeowners Insurance by City

Those who choose to live in the city may find their rates differ from those of their suburban or rural neighbors. Take a look at the average rates for homeowners insurance policies for 18 major U.S. cities. Here’s how the average premiums stack up:

City	Average annual premium	Average monthly premium
Atlanta	$2,049	$171
Boston	$1,467	$122
Chicago	$2,130	$178
Dallas	$3,284	$274
Denver	$3,021	$252
Detroit	$2,327	$194
Houston	$2,936	$245
Los Angeles	$1,566	$131
Miami	$3,572	$298
Minneapolis	$2,010	$168
New York	$1,511	$126
Philadelphia	$1,654	$138
Phoenix	$1,781	$148
San Diego	$1,333	$111
San Francisco	$1,244	$104
Seattle	$1,130	$94
St. Louis	$2,389	$199
Tampa	$2,266	$189

Source: Policygenius

As you see, there is a wide variation in prices, with Seattle coming in at $1,130 at the low end, and Miami at $3,572 at the high end. Various factors, from weather patterns to crime rate, impact these figures.

Recommended: Does Net Worth Include Home Equity?

What Factors Influence Cost of Homeowners Insurance?

The price of a homeowners insurance policy isn’t just a matter of “location, location, location,” as they say in the real estate business. There are a variety of other factors that influence your home insurance costs. These include features of the property and residence itself, and your insurance history and choices when it comes to coverage. We break down the most commonly cited factors below.

Location: Yes, this is one of the biggest influencers on the price of your policy. Actuaries, the insurance company employees who calculate rates, use complex tables that factor in a variety of risks, including crime, fire, and weather records for a given zip code.

Age and condition of home: The age of your property and its construction quality play big roles in determining what it might cost to repair or replace your home in the event of a covered loss.

Roof condition: An insurance company will likely want to be prepared for repair or replacement costs if, say, a tree branch goes flying during a storm and damages your roof. These repairs can get fairly expensive for certain roof types, such as slate or shale. As a result, your insurance company will take special interest in the type, age, and condition of your existing roof when pricing your policy.

Added features: Adding a swimming pool, trampoline, or the like can certainly make a home more fun, but it can also increase the possibility of personal liability claims. Consequently, these “attractive nuisances” as they are known in the legal field may increase the cost of your premiums.

Coverage limits: When buying a policy, you will have choices that impact the policy price. The more you insure the contents of your home for, the more expensive the price is likely to be. Also, you will decide whether to base your coverage on replacement cost or what’s called actual cash value.

The former will pay the cost of “making you whole” with a payment for a new and comparable feature that was damaged or lost. It is more expensive. With the actual cash value option, though, the policy will deduct depreciation when calculating cash payouts. If you paid $1,000 for your oven a number of years ago, and it’s destroyed in a kitchen fire that’s a covered claim, actual cash value might only pay you back its current value of, say, $250, leaving you without adequate funding to replace it.

Deductible: Your deductible is the amount you must pay out of pocket before insurance will pay out in the event of a covered claim. The amount you choose determines how much risk you’re willing to share with your insurer. A higher deductible generally means a lower-cost home insurance price.

Claims history: Insurance companies view your claims history as an indicator of your likelihood to file future claims. The more claims you’ve filed in the past, the higher your insurance premium is likely to be.

Intended use: Whether you intend to use your home as a primary residence or as an investment property can impact your homeowners insurance rate. Homeowners who choose to use their homes for a business or rent their property out as a landlord are viewed as higher risk and are charged higher home insurance premiums.

Pets: While we consider pets to be part of our families, the truth is that insurance companies charge higher rates for certain pets, particularly breeds viewed as overly aggressive. Why? The insurance company is typically providing coverage if your animal were to injure someone who was visiting. Some insurance companies may even outright reject insurance coverage for certain dogs and exotic animals. However, a number of states have banned these practices of breed discrimination. What’s more, even if you live in a state where this kind of discrimination isn’t banned, you may find that not all insurers restrict coverage or raise premiums for what are considered more aggressive pets. So it can pay to shop around.

What’s Included in a Home Insurance Policy?

If you’re wondering what exactly you get when you purchase a homeowners insurance policy, allow us to spell it out. Here are the six typical coverages offered under most homeowners insurance policies. While some of these may be optional, dwelling, personal property, and personal liability coverage are usually included under most policies.

Dwelling coverage: This pays for covered damages to your home’s structure and attached structures, such as your roof, an attached garage, or built-in appliances.

Other structures coverage: This pays for covered damages to structures on your property that are not attached to your home, such as sheds, fences, or a detached garage.

Personal liability coverage: This kind of coverage pays for injuries or damages to others’ property that you’re legally liable for, as well as legal fees incurred as a result of a covered incident.

Personal property coverage: This is the aspect of your policy that covers damages, losses, and theft of personal property due to a covered incident. This usually includes most belongings like furniture, electronics, and clothing. Worth noting: Certain items are subject to coverage caps, and additional coverage may be needed to ensure fully cover high value items like jewelry, artwork, or antiques.

Medical payments coverage: This pays for the medical bills of anyone injured on your property, regardless of fault.

Loss of use coverage: What if your home were to have fire damage that forced you to live in a hotel while repairs were made? That’s the kind of situation in which loss of use coverage swoops in. It pays for reasonable living expenses if you’re displaced from your home as a result of a covered claim.


💡 Quick Tip: Homeowners insurance covers three basic categories: the building itself, the belongings inside, and your liability if someone gets hurt on your property.

Do You Need Homeowners Insurance?

While you’re not legally required to purchase homeowners insurance, home insurance coverage is typically mandated as part of your contract with your mortgage lender. You will generally have to purchase homeowners insurance in order to close on your home if you’re buying the property using borrowed funds.The lender wants to know that their investment in your home is well protected.

If you do not maintain adequate homeowners insurance while your mortgage remains outstanding, your lender will typically purchase homeowners insurance on your behalf (often at unfavorable rates) and charge you the premiums as part of your monthly mortgage payments. It’s therefore, in your best interest to shop for and maintain your own home insurance policy.

Even if you’re an all cash buyer, having an active homeowners insurance policy is highly recommended. Real estate is where the majority of wealth is concentrated for the vast majority of American households, and it is vital to ensuring that your assets are protected in the event of a disaster. No one wants to imagine it, but bad things do happen every day, from storm damage to home burglaries. It’s important to be prepared.

There are a lot of incentives to buy homeowners insurance, as you see. That’s because it’s a key way to make sure that your home base is well protected, even when worst case situations occur.

Recommended: Should I Sell My House Now or Wait?

The Takeaway

The average price of homeowners insurance is $1,754 per year, but your particular cost will vary based on your location, climate patterns, crime rates, the type of home you live in, your deductible, and many other factors. What doesn’t vary is the fact that homeowners insurance is often a requirement. Even if not, it’s an excellent way to protect what is probably your biggest asset and give you peace of mind.

If you’re a new homebuyer, SoFi Protect can help you look into your insurance options. SoFi and Lemonade offer homeowners insurance that requires no brokers and no paperwork. Secure the coverage that works best for you and your home.

Find affordable homeowners insurance options with SoFi Protect.

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Photo credit: iStock/svetikd

Auto Insurance: Must have a valid driver’s license. Not available in all states.
Home and Renters Insurance: Insurance not available in all states.
Experian is a registered trademark of Experian.
SoFi Insurance Agency, LLC. (“”SoFi””) is compensated by Experian for each customer who purchases a policy through the SoFi-Experian partnership.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Embarking on a home renovation to transform your living space is an exciting endeavor. Home improvements are also an investment that can significantly increase the value of your property, so it’s important to track expenses to be prepared for capital gains tax when you sell your home. Tracking home improvement costs can also help homeowners stick to a budget and ensure a greater return on investment.

Let’s take a closer look at how to track home improvement costs, which upgrades qualify for tax purposes, and options for financing a home renovation.

Why Track Home Improvement Costs?

Amid all the work and logistics that goes into renovations, tracking home improvement costs might not feel like a high priority. However, having documented home improvement costs can help reduce potential capital gains tax when it’s time to sell your home.

The IRS allows qualifying home improvement costs to be added to the original purchase price of the property, known as the cost basis, when calculating capital gains on a home sale. The basis is subtracted from the home sale price to determine if you’ve realized a gain and subsequently owe tax. But by adding home improvement expenses to your cost basis, the profit from the sale that’s subject to taxes decreases — lowering or even potentially exempting you from property gains tax.

Besides home improvements, other factors that affect property value, like location and the current housing market, could make a property sale subject to capital gains tax.

Here’s an example of how capital gains tax on a home sale works: A married couple that purchased a home for $200,000 in 2001 and sold it for $750,000 in 2024 would have a $550,000 realized gain. Assuming that the sellers made this home their main residence for two of the last five years, they’d be able to exclude $500,000 of the gain from taxes. The remaining $50,000 would be taxed at 0%, 15%, or 20% based on the sellers’ income and how long they owned the property.

However, the sellers spent $70,000 on home improvements during their 23 years of homeownership, so the capital gains calculation would be revised to: $750,000 – ($200,000 + $70,000) = $480,000. Tracking home improvement costs in this example exempted the sellers from needing to pay capital gains taxes.

Note that single filers may exclude only the first $250,000 of realized gains from the sale of their home. Eligibility for the exclusion also requires living in the home for at least two years out of the last five years leading up to the date of sale. Those who own vacation homes should note that the IRS has very specific rules about what constitutes a main residence.


💡 Quick Tip: A Home Equity Line of Credit (HELOC) brokered by SoFi lets you access up to $500,000 of your home’s equity (up to 90%) to pay for, well, just about anything. It could be a smart way to consolidate debts or find the funds for a big home project.

Qualifying vs Nonqualifying Improvements

The IRS sets guidelines that determine what home improvements can be added to your cost basis for calculating capital gains tax. Thus, not every dollar spent on sprucing up your home’s curb appeal or living space needs to be tracked for tax purposes. Generally, tracking costs is a good idea for any home improvements that increase your home’s value and fall outside general repair and upkeep to maintain the property’s condition.

Qualifying Improvements

According to the IRS, improvements that add value to the home, prolong its useful life, or adapt it to new uses can qualify. This includes the following categories and home improvements:

•   Home additions: Bedroom, bathroom, deck, garage, porch, or patio

•   Home systems: HVAC systems, central humidifier, central vacuum, air/water filtration systems, wiring, security systems, law and sprinkler systems.

•   Lawn & grounds: Landscaping, driveway improvements, fencing, walkways, retaining walls, and pools

•   Exterior: Storm windows, roofing, doors, siding

•   Interior: Built-in appliances, kitchen upgrades, flooring, wall-to-wall carpeting, fireplaces

•   Insulation: Attic, walls, floors, pipes, and ductwork

•   Plumbing: Septic system, water heater, soft water system, filtration system

It’s also important to track any tax credits or subsidies received for energy-related home improvements, such as solar panels or a heat pump system, since these incentives must be subtracted from the cost basis.

Recommended: How to Find a Contractor for Home Renovations and Remodeling

Nonqualifying Expenses

Owning a home requires routine maintenance and occasional repairs — think fixing a leaky pipe or mowing the lawn. And the longer you own your home, the greater the chance you reapproach past home improvements with a fresh design or modern technologies. The IRS considers regular maintenance and any home improvement that’s been later replaced as nonqualifying costs.

For instance, a homeowner could have installed wall-to-wall carpet and later swapped it out for hardwood floors. In this case, the hardwood floors would qualify, but not the carpeting.

Recommended: The Costs of Owning a Home

How to Track Your Costs

Developing a system for tracking home improvement costs depends in part on where you are in the process. Here’s how to get track home improvement costs before, during, and after a renovation project.

Before You Renovate

The average cost to renovate a house can vary from $20,000 to $80,000 based on the size of the home and type of improvements. Given this range in cost expectations, it’s helpful to create an itemized budget that estimates the cost for each improvement. It’s hardly uncommon for renovations to take more time and money than expected, so consider budgeting an extra 10-20% for the unexpected.

Your itemized budget can be leveraged for tracking home improvement costs once the project starts. Simply plug in the completion date, cost, and description for each improvement, and keep receipts, to itemize the expense as it’s incurred.

Recommended: How to Make a Budget in 5 Steps

Keep Detailed Records

Tracking home improvement costs goes beyond crunching the numbers. The IRS requires documentation to adjust the cost basis on a property. As improvements are made, catalog contractor and store receipts and take pictures before and after the work is done to document the improvements for your records. Store these records digitally in a secure and accessible location; the IRS recommends keeping records for three years after the tax return for the year in which you sell your home.

Catch Up After the Fact

Tracking home improvement costs after the work has been completed is doable, but it requires more effort. If your renovations required any building permits, your municipality should have records on file.

For other projects, start by searching your email for receipts and records can help find a paper trail and track down documentation. Reach out to contractors you worked with for copies of missing receipts or invoices. If you paid with a check or credit card, you can browse through your previous statements or contact the bank for assistance.

Consult a Tax Pro

Taxes are complicated. If you have any doubts about what improvements qualify, consult a tax professional for assistance. Homeowners who used their property as a home office or rented it for any duration could especially benefit from a tax pro. Any property depreciation that was claimed in previous tax years may need to be recaptured if the home sale price exceeds the cost basis.

Home Improvement Financing Options

Renovations and upgrades to your home can be expensive. Many homeowners use a combination of savings and financing to pay for home improvements.

•   HELOC: A Home Equity Line Of Credit lets homeowners tap into their existing equity to fund a variety of expenses, such as home improvements. With a HELOC, you can take out what you need as you need it, rather than the full amount you’re approved for, which is often 75%-85% of your home’s value. You only pay interest on the amount you draw.

•   Cash-out refinance: Some owners take out a new home loan that allows them to pay off their old mortgage but also provides them with a lump sum of cash that they can use for home repairs (or other expenses). How much cash you might be able to take will depend on the amount of equity you have in your home.

•   Personal loan: An unsecured personal loan could be a good option for quick funding that doesn’t require using your home as collateral. The interest rate and whether you qualify are largely based on your credit score.

•   Credit card: Financing a home improvement with a credit card can help earn cash back or rewards on your investment. However, these perks should be weighed against the risk of higher interest rates. If using a 0% interest credit card, crunch the numbers to ensure you can pay off the balance before the introductory offer expires.


💡 Quick Tip: You can use money you get with a cash-out refi for any purpose, including home renovations, consolidating other high-interest debts, funding a child’s education, or buying another property.

The Takeaway

Tracking home improvement costs from the start can help stick to your project budget and lead to significant tax savings when it comes time to sell your property. A HELOC is one way to fund home improvements, and may be especially useful to borrowers who aren’t sure how much money they will need for home projects. If you’re unsure whether a home improvement qualifies under the IRS rules around capital gains tax on home sales, consult a tax professional.

SoFi now offers flexible HELOCs. Our HELOC options allow you to access up to 90% of your home’s value, or $500,000, at competitively low rates. And the application process is quick and convenient.

Unlock your home’s value with a home equity line of credit brokered by SoFi.

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Photo credit: iStock/Cucurudza

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

^²SoFi Bank, N.A. NMLS #696891 (Member FDIC), offers loans directly or we may assist you in obtaining a loan from SpringEQ, a state licensed lender, NMLS #1464945.
All loan terms, fees, and rates may vary based upon your individual financial and personal circumstances and state.
You should consider and discuss with your loan officer whether a Cash Out Refinance, Home Equity Loan or a Home Equity Line of Credit is appropriate. Please note that the SoFi member discount does not apply to Home Equity Loans or Lines of Credit not originated by SoFi Bank. Terms and conditions will apply. Before you apply, please note that not all products are offered in all states, and all loans are subject to eligibility restrictions and limitations, including requirements related to loan applicant’s credit, income, property, and a minimum loan amount. Lowest rates are reserved for the most creditworthy borrowers. Products, rates, benefits, terms, and conditions are subject to change without notice. Learn more at SoFi.com/eligibility-criteria. Information current as of 06/27/24.
In the event SoFi serves as broker to Spring EQ for your loan, SoFi will be paid a fee.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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When a couple decides to divorce, what happens to the house will depend on several factors, including state law. The partners might continue to jointly hold the property, sell the home, or one could buy the other out.

Getting divorced is usually not an easy situation. Setting aside the major impact on one’s emotional life and family, it can be challenging to tackle what happens to the home and the mortgage, which often represent the biggest asset a married couple owns.

Here, you’ll learn the answer to important questions about divorce and your home, including:

•   When you get divorced, what happens to the house?

•   How does assumption of a mortgage after divorce impact taxes?

•   How can your credit score be affected in a divorce with a mortgage?

Who Gets the House in a Divorce?

In an ideal divorce scenario, spouses will agree on how all property will be divided (and address other major concerns, such as child custody and debt responsibilities). If you and your spouse are able to agree to all terms of the separation without needing litigation, you can get an uncontested divorce much more affordably.

But what happens to the house when you get divorced and can’t agree on things? That often comes down to where you live. State law can play a key role in the outcome.


💡 Quick Tip: Buying a home shouldn’t be aggravating. SoFi’s online mortgage application is quick and simple, with dedicated Mortgage Loan Officers to guide you through the process.

Divorce and State Laws

When you get married, it is your state, not the federal government, that awards marriage licenses. Just think about the classic marriage ceremony line, “By the power vested in me by the state of XYZ.”

That means, state laws, rather than federal laws, will impact property division and debts in a divorce. In general, you’ll be in one of two types of states:

•   Common law property

•   Community property

The type of state you live in will dictate how the judge will approach the division of assets in a divorce proceeding.

Note that prenuptial and postnuptial agreements can impact the application of these laws and the assumption of a mortgage (and other property) in a divorce.

Common Law Property States

In a common law property state (also called separate property state), a married couple can own assets separately, like a car. Some spouses may choose not to open a joint bank account; some may keep their earnings and their debts separate.

Living in a common law property state means one spouse can even make a major purchase, such as a house, solely in their name, with only their name on the deed. However, that doesn’t mean that partner would necessarily automatically get the house in a divorce. Instead, common law property states use equitable distribution.

When engaging in equitable distribution, the judge will do their best to fairly distribute all assets. One spouse may get the house, but the other could get a mix of various assets roughly equivalent to the property.

Equitable distribution does not necessarily mean a 50/50 split. Instead, the judge will consider factors such as:

•   How long you’ve been married

•   How much each spouse earns, as well as future earning projections

•   Your age and health

•   Whether one spouse has another property to live in.

From these and other factors, the judge will attempt an equitable distribution of all assets that is fair, but not necessarily equal. The judge does not consider fault during these proceedings, even if one spouse is deemed responsible for the divorce, say, due to infidelity.

Most states are common law states, but you can check with a divorce attorney or your state’s website to understand the unique divorce laws where you live. Here’s a list of common law states:

•   Alabama

•   Alaska

•   Arkansas

•   Colorado

•   Connecticut

•   Delaware

•   Florida

•   Georgia

•   Hawaii

•   Illinois

•   Indiana

•   Iowa

•   Kansas

•   Kentucky

•   Maine

•   Maryland

•   Massachusetts

•   Michigan

•   Minnesota

•   Mississippi

•   Missouri

•   Montana

•   Nebraska

•   New Hampshire

•   New Jersey

•   New York

•   North Carolina

•   North Dakota

•   Ohio

•   Oklahoma

•   Oregon

•   Pennsylvania

•   Rhode Island

•   South Carolina

•   South Dakota

•   Tennessee

•   Utah

•   Vermont

•   Virginia

•   West Virginia

•   Wyoming

Community Property States

Only a handful of states are considered community property states, which strive for an even split of all assets. When you get married in a community property (also called shared property) state, you own all assets acquired during the marriage together, no matter who purchased an item or took on a debt.

In such states, property must be divided 50/50. Because you can’t split a house down the middle, the court will work to find other ways to ensure equitable distribution of assets. (For instance, if one spouse gets a home with $30,000 of equity, the other spouse must receive $30,000 of equity in some other way.)

Here’s a list of community property states:

•   Arizona

•   California

•   Idaho

•   Louisiana

•   Nevada

•   New Mexico

•   Texas

•   Washington

•   Wisconsin.

Option 1: Sell the House and Split the Profits

The first and most obvious option for spouses to consider when getting a divorce is to sell the house and split the profits. If neither spouse wants to retain the house, this is ideal — both spouses can walk away with something to fund their next move, whether it’s an apartment, condo, or another house.

Of course, that can be easier said than done. Selling a house can be a lot of work, so you’ll need to get on the same page about who’s doing what to get the house ready, work with a real estate agent, and maintain the mortgage and other costs until it’s sold.

This may be your only option if neither you nor your spouse can afford (or wants to keep) the house on your own. Getting used to living on a single income can be a tough transition and require smart budgeting after divorce.

Pros

•   It’s an easy way to split profits 50/50.

•   If the market is good, both spouses could benefit.

•   No one has to live in a house with difficult memories.

Cons

•   Selling a house requires a lot of work.

•   The market may not be favorable.

•   Children from the marriage may not be ready to say goodbye to their home.

Option 2: Maintain a Joint Mortgage

Spouses who are able to remain civil and trust each other may consider keeping a joint mortgage for one of two reasons:

•   Spouses can take turns living in the house and spending time with kids. This means kids don’t have to go back and forth from two places and can keep some routine in their lives in what’s an otherwise turbulent time for them.

•   Spouses with a nice house in a great market can earn and split profits by renting out the home or using it as a vacation rental.

Pros

•   There’s no complicated paperwork to transition an asset or difficult process to sell the house.

•   Kids can retain a sense of normalcy by living in the home with their parents.

•   In a good market, spouses can earn a profit by renting out the house together.

Cons

•   Eventually, you’ll still likely want to sell the home. You’re simply putting it off now by retaining the mortgage.

•   Ending a marriage is tough; there’s a cost of divorce, both financially and emotionally. Things might be civil now, but that can always change — and owning property together could be difficult.

•   Without profit from the sale of the home, spouses may have difficulty finding a new place to live after the divorce.

Recommended: How to Prepare Financially for a Divorce

Option 3: One Partner Buys Out the Other

In an uncontested divorce, spouses may agree that one person can keep the house and the other will receive something else to be financially fair — money or other assets, usually.

But this can also be worked out in the courts during a divorce settlement. For instance, a spouse may choose to let their partner retain the house in exchange for not having to make alimony payments. Or the spouse not assuming the mortgage in the divorce may simply get the rest of the assets.

To ensure equitable compensation, the spouse not getting the house could even receive monthly payments from the spouse who retains the mortgage over a set amount of time. Divorce attorneys can get creative with these arrangements to find a solution both partners are happy with.

Pros

•   There’s no urgency to sell the house.

•   The spouse who wants to keep the house can retain it.

•   The spouse who doesn’t want to keep the house gets compensated fairly in another way.

Cons

•   This isn’t necessarily an easy decision if both spouses want to keep the house.

•   Because home values can go up or down, the split may not be equitable in the long run.

•   A fight over the house in court could make the divorce more acrimonious (and difficult for any children involved).

Tax Implications

Fortunately, there aren’t major tax implications if you get the house in a divorce. The IRS does not treat property transfers between spouses — even those divorcing — as a sort of financial gain or loss. Instead, you’ll treat the property as gift income for taxes, but the property value is not taxable.

As with most aspects of taxes, there are always exceptions. Reach out to a tax accountant, or review IRS guidelines if you have questions.

Credit Score Implications

Property distribution in a divorce won’t directly impact your credit score either. That said, if you are the spouse who does not retain the house, your name will no longer be on the mortgage loan. That affects your credit mix and length of credit history, which can impact your score in the long run.

Similarly, if you are the spouse who is assuming a mortgage after divorce, but you suddenly find that you’re struggling to make on-time payments because of your new financial situation. You could risk damaging your score by falling behind on payments.

And what if a spouse stops paying a mortgage during a divorce, when your name is still on the loan? That can indeed hurt your credit score, so it’s crucial that you and your spouse work together to make sure you’re making these and other shared payments every month.

Recommended: Am I Responsible for My Spouse’s Debt?

How Refinancing Can Help

If you are the spouse who keeps the home in a divorce, the court may require you to refinance to get your ex’s name off the mortgage.

Doing this can be great not just for the convenience of getting their name off the loan. You may be able to work with a lender to obtain a more manageable monthly payment based on your single income. Depending on your credit and the current market conditions, you might even get a lower interest rate.

In this case, refinancing a home mortgage could be an advantageous move for you.


💡 Quick Tip: Have you improved your credit score since you made your home purchase? Home loan refinancing with SoFi could get you a competitive interest rate with lower payments.

The Takeaway

Divorce can often be a tough and tumultuous time. One of the big financial decisions to make is what happens to the house when your union ends. The state you live in may impact how the court rules in the division of assets. You may both continue to hold the property jointly, sell it, or one partner might buy the other one out. And if you end up with the house, you may need to (or want to) refinance your mortgage to make payments more manageable. Working with a divorce lawyer may be your best bet for navigating all these difficult questions and decisions.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

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Photo credit: iStock/Sundry Photography

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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