Is your home loan protected?
Buying a property is a big investment. It’s often one of the most important investments people make in their lives. When it comes to getting a mortgage, many buyers focus solely on the immediate steps they have to take and fail to consider the right protections. This week’s article breaks down some key types of mortgage insurance and answers the question, do you really need insurance for your mortgage?
What insurances can protect your home loan?
First, let’s take a look at the three key types of insurance that will protect your mortgage. They are lenders mortgage insurance, mortgage protection insurance and income protection insurance.
It is important to understand the insurance options you have available for your mortgage in order to protect yourself and your loan if you are unable to meet loan repayments.
1 – Lenders mortgage insurance
Often referred to as LMI, Lenders mortgage insurance is a one-off premium that’s payable if you want to buy a home, but your deposit is less than 20% of the value of the property. LMI protects the lender if you’re unable to repay your loan. This amount is added to your total home loan amount, which means you’ll pay more interest over the term of the loan. Paying extra interest is one of the main downsides of LMI, but it does help people enter the property market sooner.
2 – Mortgage protection insurance
This insurance protects you if you’re no longer able to make loan repayments due to serious illness, injury or death. Each policy varies depending on the insurance provider but they generally offer trauma, death and terminal illness and special injury benefits, usually paid in a lump sum.
3 – Income protection insurance
Income protection insurance pays part of your lost income if you’re unable to work because of a disability, caused by illness or injury. This insurance can pay up to 85% of your gross income if you’re unable to work due to partial or total disability. Each policy will have its own definition of disability and the level of cover provided will vary.
Do you need insurance for your mortgage?
If you don’t invest in protecting yourself and your home loan, you could end up in a costly financial situation. Many people look at the extra costs as they start to add up but these far outweigh the risk of being unable to meet your financial obligations or support your family if you can’t repay your mortgage.
What’s right for you?
Many people have insurances attached to their superannuation or health insurance provider, so make sure to double-check the cover you already have before making any decisions. It is always advised that you discuss these issues with a financial professional
Please reach out if you’d like to discuss the protection that’s right for your situation.