In the lead up to buying your first home there are many factors to take into consideration. Not only do you need to work out where you want to live and what you would like to buy but what you are able to afford. Many people will meet with a mortgage broker or bank to determine their financial position and borrowing capacity. At this point in time it is also important to consider the protections you have in place to cover the potential mortgage if you were unable to make the repayments.
As with everything in life, it depends on your personal and family circumstances. Although it is not required when buying a house, life insurance often plays an extremely important role when it comes to securing your family's future.
Regardless of whether you’re purchasing your first home, buying a new home to accommodate your growing family, purchasing an investment property or holiday home, or even downsizing as you approach retirement, buying property is a significant financial responsibility, which for most will be an ongoing mortgage commitment.
Life insurance can provide peace of mind that you have financial assistance to help cover your mortgage and the financial responsibilities that come with owning a home, whatever may happen.
Searching for and buying a new home is a busy and emotionally-charged time.
With so much going on it can be tempting to delay purchasing life insurance until after you’re set up in your new home or have finalised arrangements around your new investment property.
But just because you're not living in your new home or are yet to move tenants in, it doesn't mean you're not financially responsible for it and should consider how to ensure you’re financially protected.
If you already have life insurance in place, it is important to review your policy and ensure that it provides you with enough cover if your debt has increased. When reviewing your cover, it is worth looking at the level of cover you have in place, the waiting period, the benefit period and what you are covered for.
You might have heard of the term lenders' mortgage insurance (LMI) before and wondered how it differs from life insurance. The main difference is that LMI protects the lender, whereas life insurance protects the individual who holds the policy.
As it stands, generally most people need to have at least 20% of the purchase price as a deposit to avoid paying LMI when taking out a loan."
For example, if you have less than a 20% deposit (or haven't been accepted for the federal government’s First Home Loan Deposit Scheme), you may have to pay between $2,500 and $10,000 in LMI.
While you are responsible for paying for LMI, it's designed to protect the lender, not you and your family.
Therefore, if you default on your loan and the sale of your property doesn't equal the unpaid value of the mortgage, lenders can generally claim on the LMI policy to make up the shortfall.
This is vastly different from life insurance. With Life Insurance you can receive a lump sum payment which could help your family pay off the mortgage and other necessities if you were to pass away. And when coupled with other insurance products, you can help protect against accidents or illnesses that might result in you falling behind on your mortgage payments or other financial commitments. Therefore, reducing the chances of you defaulting on your payments and allowing you to keep your property.
There are four main types of life insurance that people buying a home generally consider, including:
Income Protection Insurance: Provides you with monthly payments of up to 75% of your monthly income to help you to continue living your life, which you may choose to put towards covering part or all of your mortgage repayments depending on your circumstances.
Life Insurance: Protects your family's future and gives them options if you are no longer around with a lump sum payment which could be used to cover the ongoing costs and commitments that come with owning a home.
Total Permanent Disability Insurance: Gives you options to help you live a better quality of life if you are permanently disabled and can't work. This can help ensure a disability doesn’t prevent you from covering the expenses relating to your home. It can also allow you to use this lump sum payment to make modifications to your home if this was required from your illness or injury.
Recovery Insurance: If you claim on recovery insurance, it provides you with a lump sum payment. This allows you to focus on your recovery and rehabilitation, rather than financial pressures, such as paying for your mortgage.
If you’d like to explore some options to help meet your financial goals or review your current financial measures that in place, reach out and get in contact with us.
Any advice is general in nature only and has been prepared without considering your needs, objectives or financial situation. Before acting on it you should consider its appropriateness for you, having regard to those factors."
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General Disclaimer: This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. Please seek personal financial advice prior to acting on this information.