How life insurance can help - when buying a home

2020 -

Going once, going twice, sold! It's one of the most exciting times in your life: buying a home. 

Few moments in life are more thrilling than buying a home. And for good reason: it will likely be the biggest investment you'll ever make.

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. 

And while it may not be as appealing as getting stuck into your plans for redecorating, it’s an important stage of buying a home and time well spent to protect your investment and the life you’ve worked hard to build. 

Do I need life insurance to buy a house? 
 
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. 
 
Where income protection can play an important role is in helping you to cover your financial commitments in the event that you were unable to work either temporarily or permanently due to accident or illness. Life insurance would protect you if you were to fall terminally ill or pass away, leaving your family with the financial security to manage the mortgage and other financial commitments on their own. 
 
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.  
 
How important is life insurance when buying a property?
 
Let’s consider what would happen if you were suddenly unable to work due to an unfortunate accident or illness, but you had taken out life insurance beforehand. With the average monthly mortgage repayments calculated at $2167 in Sydney and $1820 in Melbourne, it's important to have the right protection in place if the worst were to happen. 
 
With TAL’s Lifetime protection Insurance you can receive a lump sum payment of up to $2 million to help your family pay off the mortgage and other necessities.
 
Income protection insurance is the one life insurance product that pays out a monthly payment, instead of a lump sum. The monthly payment can cover up to 75% of your monthly income. If you have a TAL Lifetime Protection Income Protection policy, then this is to a maximum of $12,000 per month – which can be used to help cover your ongoing home and living expenses. 

Should I buy life insurance before moving into my home?

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, 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 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. Speak with your insurance provider or financial adviser to update your policy. 

What is the difference between lenders' mortgage insurance and life insurance?
 
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.
 
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 TAL’s Lifetime protection Insurance you can receive a lump sum payment of up to $2 million to help your family pay off the mortgage and other necessities if you were to pass away. And when coupled with other insurance products, which we cover in more detail below, 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. 
 
LMI and life insurance are two very different insurances designed for two very different purposes, and it's not uncommon to take out both.

What types of life insurance should I consider when buying a home?

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 of up to $2 million with TAL’s Lifetime Protection Life Insurance, 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.

How do I purchase life insurance to protect my home?
 
Your life is unique: just as you would design and construct a different house to your next-door neighbour, so too would you build different life insurance policies.
 
We understand that at TAL, which is why we've designed the CoverBuilder tool to help you create an insurance plan that's just right for you and your family.
 
So to find out which life insurance options will best help you protect your new home, head over to TAL's Insurance Products page.
 
That way you can protect what matters most to you, and continue enjoying the life you love.

How much does Life Insurance cost?

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