Do You Need Life Insurance for A Mortgage in Australia
While having some cover in your superannuation is a great start, it might not be enough if something were to happen to you.
What would happen if you were to become sick or disabled or died? Term life insurance could pay off your entire mortgage should you pass away before it's been repaid, helping your family to continue living in their home if the worst were to happen.
Can I get a mortgage without life insurance?
Yes, life insurance for a mortgage is generally not compulsory. However, your home is probably one of your most important financial assets and should be protected. If you rely on your income to pay your home loan and are unable to work because of a disability or disease, you might lose your house. Or, if you die, your loved ones might not have a home.
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NobleOak Direct Life Insurance
Protect your family with Life Insurance and pay on average 20%* less when compared with other insurers. T & Cs apply. Consider the PDS. Issuer is NobleOak Life Limited ABN 85087648708. AFSL 247302.
Is life insurance necessary for a mortgage?
While life insurance might not be necessary when buying property, you and your family might still need it. Consider the risk to you and your family’s financial future. Although life cover might not be mandatory, Lender Mortgage Insurance (LMI) cover is usually compulsory when buying a house with less than 20% deposit. LMI protects the lender, usually your bank, and not you, the borrower.
Is mortgage protection the same as life insurance?
No. The difference between life insurance and mortgage protection insurance (MPI) is that mortgage protection protects you, the borrower, from defaulting on your payments due to unemployment, illness, injury or death by paying a lump sum benefit. MPI is generally calculated according to the mortgage amount you owe and does not consider any other variables, like providing for your dependents, this is why life insurance is so important.
Mortgage Protection can only be used for a single purpose - to pay off your mortgage and will generally stop when your house is paid in full. Typically, an MPI benefit declines as your mortgage decreases, unlike life insurance cover that usually increases with the cost of living.
How can life insurance protect your mortgage?
Life cover pays a lump sum benefit to your nominated beneficiaries in the event of your death or diagnosis of a terminal illness. Your loved ones can then use this money to cover the outstanding mortgage and other debts, so they may continue to live in the house you bought.
How much life insurance do you need when buying a house?
The amount of life insurance you need depends on your specific requirements and stage of life. However, if you want protection specifically to repay your home loan, you need at least enough to cover your outstanding payments.
If you already have life cover, review your policy and check if it provides enough coverage for the extra debt of a mortgage. Consider increasing your current plan or buying another policy from a different company to avoid leaving your family with unpaid bills
Usually, your mortgage will decrease over the years, so if you no longer need as much life insurance, contact your broker or insurer and amend your policy.
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Types of life insurance to consider before buying a house
The kind of coverage you should take out when buying property depends on:
- Your total mortgage amounts still outstanding.
- If you're the primary breadwinner.
- How much money you have saved.
- Do you rely solely on your salary or do you have other ways of generating an income?
- How many financial dependents you have.
- The type and amount of insurance policies you already have.
- How much you can afford to pay for premiums.
- Ongoing costs on of your repayments, for example, water, electricity and general maintenance.
Provides a lump sum payment should you die or be diagnosed with a terminal illness that will cause our death within 12 to 24 months, depending on the insurer. Get financial protection to support your family's current lifestyle and alleviate the burden of home loans and outstanding debts.
Pays a lump sum benefit if you can never work again because you’re totally and permanently disabled due to a sickness or accident. Can help pay for the home modification you might need to support your new lifestyle, and any outstanding medical bills, as well as help you keep up with mortgage repayments.
A lump sum amount is paid if you’re diagnosed with one of the critical illnesses listed in your insurance documents. For example, cancer, stroke or heart attack. You might need this payout for home care services, rehabilitation and home modifications.
Can I use income protection for mortgage payments?
Should you struggle to make mortgage repayments in the event of losing your salary due to illness or injury, income protection might be worth considering. Income protection generally pays a monthly benefit of up to 75% of your salary, protecting you against the sudden loss of your income. Without it, you may not be able to meet your home loan payment obligations resulting in the loss of your home.
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