Do I Need Life Insurance If Borrowing to Buy a House?
Updated: Mar 25
It’s not the most popular product in the marketplace and seen by many as a grudge buy however, life insurance is often the financial hero helping families to cope when life doesn’t go to plan. In this article Licensed Financial Adviser, ROD LINGARD outlines why when borrowing money to buy a property it’s so important to have adequate personal insurance so that in the event of a disaster you or your family are not left disadvantaged financially.
Anyone who has bought a house probably understands the need to have the house insured. We are all familiar with providing a ‘Certificate of Currency’ to the bank before settlement to prove the house is insured.
The same applies if we get a loan to buy a motor vehicle. The financier wants to know the vehicle is comprehensively insured. But what about personal insurance?
Whether you are arranging your home loan through a broker or directly with the bank, the person organising your loan should be asking you this question “do you have adequate life and other personal insurances in place?”.
Let’s face it, for many of us, our lifestyles are directly linked to the income we earn. The houses we live in are paid for with the income we earn. The same applies to the cars we drive. When it comes to the things that rely on income, the list goes on and on. We insure the things we buy, but do we insure that which enables us to buy them?
So here comes the hard question!
If your income was to cease, due to an untimely death, injury or illness, what would the financial impact be?
If a tragic event would cause you any type of financial hardship, then insuring against those events just makes good sense.
Deep down, we know we should have comprehensive life and personal insurance in place, but unfortunately many of us don’t which in turn leads to untold financial stress on many families.
Why are many of us under-insured?
There are a number of reasons why so many Australian’s are living life under-insured.
Firstly, many people find the topic of death too confronting to discuss. Yes, it is certainly a sensitive topic, but generally the peace of mind that comes after putting a plan in place outweighs the short term pain of a confronting discussion.
Secondly, the response from many when asked about their personal insurance plan is “I have insurance in my super”.
In most cases this is true – but is it enough (it rarely is!), and will it be available when you need it?
Thirdly, it costs too much to buy. There is no doubt that insurance comes at a cost, but if loss of income is going to cause hardship or worse, then it’s very much a ‘must have item’. The truth is that Life Insurance is not a luxury it’s a necessity for those left behind.
So what types of personal insurance are available?
Life Insurance – in the event of the death of the insured person, the insurance policy will provide a lump sum payment.
Income Protection – in the event the insured person is unable to work due to illness or injury, the insurance policy will provide a monthly benefit payment. Generally there are waiting periods and limitations on the duration of benefit payments.
Total and Permanent Disability – in the event the insured person suffers a Total and Permanent Disability (that is, will never return to work), the insurance policy will pay out a lump sum.
Trauma or Critical Illness – in the event the insured person suffers a Total and Permanent Disability (that is, will never return to work), the insurance policy will pay out a lump sum.
Working out what type and how much insurance you need can all be a bit overwhelming, and sometimes it can be hard to know where to start.
A qualified financial planner will sit down with you to go over your needs and from there they help to develop and put in place an insurance plan that fits within both your future financial needs in the event of a claim and your current budget.
So if you’re not covered for life’s ‘what if’ moments, it may be time to start the discussion.
Rod Lingard is a Mortgage Broker and a Licensed Financial Adviser at Lifestyle Connexion and can be contacted on 0400 160 461. Financial Advice is provided by Rod Lingard – Authorised Representative No: 248734 of MASU Financial Management Pty Ltd | AFS Licence Number 231140 ABN: 78 069 358 498.
Warning: This blog is not designed to replace professional advice. It has been prepared without taking into account your objectives, financial situation or needs. You should consider the appropriateness of the advice, in light of your own objectives, financial situation or needs before making any decision as to whether Superannuation is appropriate for you.