Buying a property is a significant investment. This is often one of the most important investments people make in their lives. When it comes to getting a mortgage (home loan), many buyers focus solely on the immediate steps they have to take and fail to consider the right protections.
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 lender’s mortgage insurance, mortgage protection insurance and income protection insurance.
It pays to understand the insurance options you have available for your mortgage to protect yourself and your loan if you are unable to meet loan repayments.
Lenders Mortgage Insurance
Often referred to as LMI, a lender’s 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 property’s value. 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 loan term. Paying extra interest is one of the main downsides of LMI, but it does help people enter the property market sooner.
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, terminal illness, and special injury benefits, usually paid in a lump sum.
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. The cost of Income Protection Insurance may be tax deductible if outside your superannuation fund.
Do you really 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 they 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.
Please reach out and feel free to Join the conversation… if you’d like to discuss the protection that’s right for your situation.