Buying your first home is a huge achievement — one you should be proud of, and one that’s worth protecting. Life insurance can safeguard your new home through some of life’s most challenging moments.
What does life insurance have to do with my first home?
You probably wouldn’t think twice about protecting your car or home contents with insurance — shouldn’t you protect your ability to earn an income and provide for your loved ones too? Ask yourself, if you suddenly became sick or injured and couldn’t work, how would you cover your household expenses, including mortgage repayments? Or if you passed away unexpectedly, would your partner be able to cope with the debt left behind on their own? It’s times like these that people rely on life insurance.
What will life insurance cover?
There are different types of life insurance, and each can help protect your way of living in different ways.
Life insurance or ‘death cover’ pays your loved ones a lump sum if you pass away or are diagnosed with a terminal illness. Your partner can use the payout to help pay off the mortgage and other bills, alleviating any pressure to sell the family home at an already stressful time.
Income protection can provide peace of mind if you need extended time off work to recover from illness or injury. This insurance can pay up to 70% of your regular income monthly if you are off work due to illness or injury beyond the waiting period, so you can continue to make repayments and cover everyday expenses while you’re getting your health back. The waiting period is the period after illness or injury for which cover is not provided, with insurance only paid for the period after the expiry of the waiting period that the claimant is off work due to illness or injury.
Total and permanent disability (TPD) insurance can pay you a lump sum if a permanent disability leaves you unable to work. Here, a payout can help with mortgage repayments as well as any home design alterations required to assist you with accessibility.
Critical illness insurance pays a lump sum if you’re diagnosed with a defined critical illness, like cancer or a stroke, and meet the severity criteria (beyond diagnosis) set out in the policy terms. This financial support can help you keep up with repayments so you can stay focused on what matters: your health.
What about lenders’ mortgage insurance?
Lenders’ mortgage insurance (LMI) is different to life insurance — it protects the lender, not you. You’ll usually have to pay for LMI if your deposit is less than 20% of the property price. In a nutshell, if you end up unable to make mortgage repayments, you may have to sell your home, with the proceeds paid back to your lender. If there isn’t enough from the sale to cover the property value, the lender will recoup the difference by claiming on the LMI policy.
It’s not unusual to have both LMI and life insurance — as you can see, they each play separate and important roles. If you’d like to understand further how life insurance can protect you, your family and your first home, feel free to reach out to the team at ADR Wealth — we are here to help.
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. Before making any decision about whether to acquire a financial product, you should obtain the Product Disclosure Statement.