RateCity asks the question, how would you pay off your mortgage and other debts if something terrible happened to the main breadwinner in your household?
August 18, 2010
Unfortunately, it’s impossible to predict what the future holds, but have you ever considered how you or your family would cope financially if the person that brings home the bacon were hit by a bus or diagnosed with a terminal illness?
A Financial Stability Review by the Reserve Bank of Australia showed there were 27,000 households that were more than three months late in their repayments. This is up from 23,000 recorded mortgages more than 90 days in arrears in late 2008.
As most of us don’t have a bundle of money tucked away or tied up in investments, how would you or your beneficiaries cope with paying off a home loan?
Consider the future and bring ‘what if’ into the equation
The loss of a regular income could mean that meeting your mortgage repayments and living day-to-day may be a major struggle.
In the event of your death, injury, disability or long-term illness, choosing a type of insurance is just as important as comparing home loans, to provide you or your beneficiaries with the financial security they deserve.
For instance, in the case of life insurance, your insurance company will pay your beneficiaries a lump sum, so they can pay off the mortgage and any other debts left behind. Otherwise without life insurance your family may be forced to sell the property, probably at a loss due to the urgency of the matter, not to mention the disruption it may cause at such a difficult time.
Pick one or mix it up
Whether you already have a mortgage or you are currently shopping around for a home loan, there are several main types of life insurance products available relevant for mortgage-holders, including:
- Term-life insurance (death cover): This type of cover provides your beneficiaries with a lump-sum payment in the event of your death.
- Disability insurance: Your insurance company will provide you with a cash benefit if you suffer total and permanent disability.
- Income-protection insurance: If you are injured or have an illness, income protection will cover you by paying a percentage of your income lost, usually up to 75 percent of your gross salary at the time of the claim.
- Trauma insurance: If you are diagnosed with a serious medical condition (check your insurer for a list of conditions), your insurance company may provide you with a lump sum to pay for debts.
So while you compare home loans online, shop around and compare life insurance policies to find one to suit your situation. There are a range of independent insurance companies or financial institutions that offer life insurance cover, you can also check your superannuation policy to see if what options are available and some brokers and financial advisers can also either arrange or recommend insurance solutions to suit you.