Why home buyers should think about life insurance

Feb 01

Why home buyers should think about life insurance

There’s a long list of financial considerations people make before purchasing a new home. Eliminating debt, saving for a deposit, budgeting for the mortgage—all are front of mind when entering the property market. Once the purchase has been made, homeowners and contents insurance are viewed as necessary to help protect this asset.

But what about life insurance? If you’re entering the housing market or recently purchased a property, you may want to consider adding a life insurance policy to your financial portfolio.

Insured, but not for enough

Australia has a big underinsurance problem. Recent research into the subject showed that less than 40 per cent of Australian adults aged 18-69 hold a life insurance policy. The relaxed, “she’ll be right” attitude held by many Aussies is partly to blame. This feeling of invincibility has helped the country become one of the most under-insured in the developed world, putting families at risk of financial hardship.

Even when they do have a policy, Australians often do not hold enough cover. A 2015 report by Rice Warner put the underinsurance gap (the difference between the cover held and what is actually needed) at just over $1.8 billion. Life insurance included in superannuation plays a part in this gap. These “one size fits all” policies are not tailored to meet individual needs, leaving many Australians undercovered.

Is life insurance right for me?

There are many reasons why people seek out life insurance, with buying a home cited as the second most common reason (just after the birth of a child).

This makes sense. Buying a home or investment property is probably one of the biggest financial assets that most people will purchase in their lifetime. You’ve worked hard and saved to afford property, and you’ll likely want to protect it. Life insurance could help you safeguard this important investment and your family’s future.

If you’re still unsure about taking out a life insurance policy, consider what your family’s financial standing might be if you were no longer there to provide for them.

For more than just death

It may be difficult to think about, but life insurance can help provide your family with financial security if the worst were to happen to you. A benefit amount large enough to pay off the mortgage (or make a sizable dent in a home loan) could help remove a major source of stress from your loved ones’ lives if you were to pass away unexpectedly or be diagnosed with a terminal illness. Instead of worrying about losing the house, your family can focus on more important matters.

Life insurance may also cover more than just death or a terminal illness. Some policies offer optional extras that can pay out a benefit if the insured is severely injured in a serious accident or becomes permanently disabled. Either of these events could affect your ability to earn an income in the short and long term. Opting for policy extras could help you avoid depleting any savings you may have, especially if you are unable to return to work.

 What about super?

As we’ve already mentioned, life insurance policies bundled with superannuation accounts rarely meet the needs of Australian families. They may be relatively inexpensive and easy to get, but this convenience comes with downsides for home owners.

The biggest issue is that the standard level of cover available is often too low, and may not provide enough cover for your family’s needs. Customising these policies can be expensive and difficult, as the lower premiums negotiated by super agencies is based on their bulk buying power. There are sometimes restrictions placed on who can be named as a beneficiary and the payout may be delayed. For these reasons, an individual policy may be a more appropriate way to address your financial needs.

Think it over

The decision to seek life insurance cover is a big one, but if you’re buying property it could also be a smart one. Affordable rates mean you can help protect your assets without breaking the bank, and flexible payment options can be changed at any time to fit your needs. A well-chosen policy could help you or your family keep your dream home should the unthinkable happen.