The figures are in and only 11% of mortgage holders aged 20-49 have any form of loan protection should their income suddenly cease due to illness, injury or death. This raises the question: is a lack of information or fear of unaffordability contributing to a low level of mortgage protection around Australia?
So what is life insurance and what are the benefits?
Life insurance provides the security of covering your home loan if the unfortunate were to happen. It ensures your family and loved ones aren’t left with the burden of having to repay your mortgage in the event of death and provides peace of mind and protection of your financial obligations.
Term life insurance is the cover necessary to ensure your mortgage is protected. Term policies run for a fixed period of time (such as 5, 10, 15, 20 or 30 years) and only offer a pay out if you die during the policy term. These policies are as cost-effective as you are purchasing insurance only. By selecting term life insurance and purchasing a policy for at least the amount of your home loan, the face value of the loan can be used directly to pay off your mortgage if it became necessary.
Other benefits of term life insurance include flexibility, with the capacity to increase cover when necessary as well as the option to renew the policy at the end of the original fixed term period. Cover is automatically increased each year to keep up with inflation and is therefore a highly suitable means to ensure mortgage protection.
What about cost?
Perhaps the greatest concern for individuals when contemplating life insurance is knowing how much it will cost. The price you pay for a term life insurance policy depends on a number of factors including:
- The amount of money you want to cover (at least the total of your mortgage)
- The length of policy
- Your age, health and lifestyle status
- Generally, the younger you are, the cheaper your policy premiums are likely to be and often you’ll be able to find a policy that offers very good value for your needs.
This is where hiring an informed and highly experienced mortgage broker to initiate and manage your home loan holds the most value. Good mortgage brokers should highlight your risks when applying for a mortgage and inform you of your coverage options to protect you and your family if the unthinkable happens.
There are many things an average household can live without, but for those who have a mortgage or those considering purchasing their first property, life insurance is certainly not one of them. Take the time to talk to a mortgage broker about your best options, as they are perfectly placed to inform and help protect you during this incredibly important time of mortgage acquisition.
* This article was contributed by REBAA affiliate member 1st Street Financial
