Q: How important is life insurance when buying a house? I have some insurance on my superannuation, but my mortgage broker tells me that I should consider separate life insurance as well. Is he just trying to get extra commission out of me?
A. Australians tend to think we’re a little bit invincible; the whole ‘she’ll be right mate’ attitude and mentality that the bad stuff ‘won’t happen to me’. This has helped us become one of the most under-insured nations in the developed world.
I personally think life insurance is important regardless of whether you own property or not. However your home or an investment property will likely be one of your biggest financial assets which you’ve worked hard to get, so it’s worth protecting for yourself and your family. Plus, most life insurance products now offer terminal illness which means that if you find out that you have less than 12 months to live, your insurer will pay you the sum insured up front so you can get all of your affairs in order.
Like you, a lot of Australians will probably have some life insurance in super, but research has shown that the average person is only covered for 14% of what they need. This means that if something does happen, the people left behind are going to have to cover that gap. Whilst some super companies have life insurance fast track processes, many companies need life insurance payments to be approved by a board of trustees that could take some time, especially during a period when the family needs all the help they can get.
Without getting too doomy and gloomy, just have a think about whether any of the following reasons to get life insurance makes sense to you:
- You’re not sure how you would repay your mortgage if you were to fall seriously ill or worse;
- You rely on one income for mortgage repayments;
- You’re uncertain of the amount or type of cover you might have elsewhere, such as in super;
- You want to protect all members of your family and you don’t know where to start.
Your broker may or may not get paid extra commission for helping you with insurance separately, but if they do, they need to tell you that before you buy that insurance. Either way, the price you pay for going direct to the insurer or through a broker should be a similar rate.
Whether you use your mortgage broker, a financial adviser or you do it yourself, the important thing is to protect you and your family from the unexpected. It doesn’t take long to figure out how much life insurance cover you really need and to compare that to what, if anything, you have in place.
Do you have a question for John? Leave it in the comments below and check back each Sunday to see if your question has been answered!
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