If your income stopped tomorrow, would you be able to keep up with your mortgage repayments? Or in the event of death would your partner be able to continue managing your mortgage and any other family commitments?
You may choose to dig into your savings. However, most of us do not have sufficient savings to keep financing our mortgage if we become sick, injured or die.
This is one risk factor that should always be considered when taking a mortgage. One should always ask themselves this question and ensure that they have suitable measures in place to mitigate risks should unfortunate events occur.
There are many various insurance options to protect you from such risks; the main ones to consider are:
- Income Protection
- Mortgage Protection
- Life Insurance
These three insurance products will help you mitigate risks when:
- you fall sick or injure yourself;
- you involuntarily become unemployed;
- you die;
We do not like to think about these possibilities but the fact of the matter is they do occur, and when they occur you would rather be prepared and covered otherwise it could mean:
- not being able to repay your debt commitments;
- not having enough money to sustain the life style you are accustomed to;
- Being forced to sell the family home or worst yet having the bank repossess it;
The insurance covers are there to try and ensure that your living standards do not change as a result of the unfortunate event. The cover will allow you to maintain your life as if nothing had happened.
What is Income Protection?
Income protection insurance will provide you with a percentage of your usual income (usually 75%) if you become disabled for a long period of time. You choose the premium you pay by selecting the amount of time you have to wait for benefits once you are disabled and also the length of time you will be eligible to receive the benefits. The sooner you are eligible and the longer you are eligible, the more you can expect to pay in premiums. Other underwriting criteria also affect premiums such as age, occupation industry etc…
One clear advantage with Income protection premiums is that they are a tax deductible expense.
What is Mortgage Protection?
Mortgage Protection and Income Protection are very similar. The difference is that mortgage protection will specifically cover your mortgage payments in case of a disability. Some even cover for involuntary unemployment.
What is Life Insurance?
This insurance makes a lump sum payout to your estate when you die. Many policies will make the death benefit payout if you are diagnosed with a terminal illness in lieu of death.
The purpose of Life Insurance is to ensure that in the event of death that deceased person has left enough funds to allow his or her partner to continue with their lives to:
- Meet mortgage repayments (or payout the home loan)
- Meet the financial loss of that partner. If they have kids this will mean covering for the kids tuition fees until graduation, accounting for the cost of raising the family alone (single income), the aim is simply to ensure that whoever is left behind is not placed under any financial burden which will allow them to continue living life comfortably.
It is important to note that most people will have Life Insurance and Income Protection within the Superannuation policies however these policies are usually limited and the conditions are usually not fitting within clients needs. It is always good to review exactly what the Superannuation policies cover and decide whether further cover is required.
I have just skimmed through the basics of these insurances. What is most important to take from here is to ask yourself whether you have considered these risks and if you have sufficient cover to mitigate the risk. If you are unsure then its time you contact a professional and have them run through it with you.
Feel free to contact me to discuss further.