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Why you need life insurance when buying a home

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  • 23 May 2018

It may surprise you to learn that, if you have a home loan and something bad happens to you, you could lose your home. If you can no longer afford to make the bond repayments because you get sick, become disabled, or even die, the bank will sell the property, and if that happens, where will your family live?

Gretchen Pletschke from Indie says there’s a simple way to avoid this far more stressful life event, which is to get life insurance.

Pletschke looks at some of the ins and outs of getting life insurance as a first-time homeowner:

How does life insurance protect my family?

Life insurance, unlike mortgage protection insurance, covers more than just your home loan, it is used to cover your debts so that your loved ones aren’t left with any hefty bills to pay. It also differs from building insurance which covers the house itself against damage from fire, break-ins, and natural disasters.

So, if something happens to you and you can’t repay the bond, life insurance pays out a lump sum to cover the outstanding amount so that your family can stay put and continue to thrive.

Do I have to have life insurance as a homeowner?

Strictly speaking, you don’t, unless the bank or bond originator that’s giving you the home loan requires it. But, if you consider the risk to your family’s financial future if you don’t get covered, it’s strongly advisable that you do.

How much life insurance do I need?

In this case, the right amount of life insurance is enough to cover your home loan if you die.

Of course, if you don’t already have life insurance to cover your other debts, you probably want to get enough cover to make allowance for that too.

Remember that, because you’re making monthly repayments on your bond, the outstanding bond amount is going to get smaller, so it’s a good idea to reduce you cover each year. This in turn can lower your premiums.

What if I already have life insurance?

It means you’re ahead of the curve, but you should definitely check if your current policy provides enough cover for the extra debt of a home loan. If your cover is too low, you should consider getting extra life insurance to cover that. Remember, the idea here is to avoid leaving your family with unpaid debts.

Where can you get it?

Well, for one thing, you don’t have to get it from the bank that’s giving you the home loan. A lot of people don’t realise they have options here, so you should totally shop around to find a life insurance product that gives you the best cover at the right price.

When should you get it?

If you have dependants and no life insurance, getting life insurance should be really high on your priorities, regardless of becoming a new homeowner. If you already have life cover, but need to get more to cover your new bond, you should aim to get it before the house is transferred into your name.

 

Original article from: Property24