Do you need life insurance when 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.

How important is life insurance when buying a property?

As with everything in life, the answer depends on your personal and family circumstances. Although it is not specifically required when buying a house, life insurance can play an 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 usually involves an ongoing mortgage commitment.

Life insurance can protect you if you were to pass away or be diagnosed with a terminal illness, leaving your family with the financial security to manage the mortgage repayments 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.

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 keep in mind that just because you're not yet living in your new home or are yet to move tenants in, it doesn't mean you're not financially responsible for it. That’s why it’s important to consider how you’re financially protected.

If you already have life insurance in place, it is good practice to review your policy and ensure that it provides you with enough cover to meet your financial needs. When reviewing your cover, it is worth looking at the level of cover you have in place, the waiting period, the benefit period, your insurance premium, and what you are covered for. Speak with your insurance provider or financial adviser to update your policy, and check the terms and conditions in the relevant Product Disclosure Statement (PDS).

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.

According to Moneysmart, most people need to have at least 20% of the purchase price as a deposit to avoid paying LMI when taking out a loan.

While you are responsible for paying for LMI, it's designed to protect the lender, not you and your family. This is because 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.

Do you need both LMI and life insurance?

LMI and life insurance are two very different insurances designed for two very different purposes, and it's not uncommon to take out both.

How can life insurance help to protect your mortgage?

With TAL’s life insurance, you can receive a lump sum payment to help your family pay off your mortgage and any other costs associated with your property if you were to pass away. When coupled with other insurance products, you can help to protect against falling behind on your mortgage payments or other financial commitments due to illness or an accident. This reduces the chances of you defaulting on your payments and allowing you to keep your property.

What types of life insurance should you 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 based on a portion of your monthly income if you are unable to work due to injury or a medical condition. You may choose to put this income towards covering your living expenses including part or all of your home loan 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, 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 to 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.

Critical Illness Insurance: If you claim on critical illness insurance, it provides you with a lump sum payment. This can help you to focus on your recovery and rehabilitation, rather than financial pressures, such as paying for your mortgage.

To put together a level of cover that suits you, use TAL’s Coverbuilder.

Any financial product advice is general in nature only and does not take into account any person’s objectives, financial situation or needs. Before acting on it, the appropriateness of the advice for any person should be considered, having regard to those factors. Persons deciding whether to acquire or continue to hold life insurance issued by TAL should consider the relevant Product Disclosure Statement (PDS). The Target Market Determination (TMD) for the product (where applicable) is also available. Life insurance issued by TAL Life Limited ABN 70 050 109 450 AFSL 237848.