When taking out a large commitment such as a mortgage, it is important to have insurance against any unexpected events.
We always hope that nothing will ever go wrong, but the reality is that it sometimes does. It is important to be prepared.
When a bank takes a mortgage over your property they will require you to take out Building Insurance. What if your home was to burn down or suffer major damage? Having building insurance will mean that you can afford to rebuild or make the necessary repairs. This helps protect you as a borrower from what is known as being in a negative equity position.
Negative Equity occurs when the amount you owe the bank is more than the properties actual value.
It is important to remember that building insurance is not for the full value of the home and land. Even if the house is destroyed you would still have the land, which has value attached to it.
If you are purchasing a strata property or an apartment, you may not need to take out a separate insurance policy. It may already be part of your strata fees.
Building Insurance will protect the bricks and mortar of your home. Contents Insurance protects your items inside the building.
Contents Insurance from the bank’s point of view is optional and you don’t need to take it out. However, if you have valuables that you own, you will definitely want to consider having them protected.
Income Protection Insurance is again optional and a personal choice. The bank can not require you to take it out.
It is always important to consider what would happen if you were unfortunate enough to lose your job, or unable to earn a living. How would you meet the minimum monthly repayments on your home loan?
This can be an especially important consideration for families who are solely reliant on one income earner.
Life Insurance can pay out a lump sum to your loved ones in the event of death. The payment could be used to protect your dependents and help to pay off remaining debts.
Strong consideration needs to be given to what would happen in the event of your death. What if you had to leave the repayments to your spouse? Or perhaps, you find yourself in a position where you are unable to work again.
It is important to know that these insurances are available to you. The bank won’t require you to take out the insurance, but paying for them could give you piece of mind.
Contents, Income Protection, Life Insurance as well as Disability Cover are all personal choices.
While your superannuation fund may have a level of cover, it is still important to look into to this in detail. As the bare minimum level of cover may not be enough in your situation.
To ensure yourself against unfortunate life events such as income protection or life insurance, we recommend you speak to a Financial Planner. They can help evaluate your options and work out an appropriate level of cover. If you need a recommendation for who to speak to please get in contact.