Is life insurance necessary for homeowners?

Of all the insurances, is this the one to tick off your list?

It’s a time of reflection when buying property, whether it’s your first time or you’re selling up and buying again. You may not want to be thinking about this right now, but what if you got seriously injured or ill and you couldn't meet your financial commitments including your home loan repayments – what would you do? Now could be a good timeto weigh up the options that may be open to you, and we’d like to give you some information about life insurance.

Why make a plan now?

Whether it’s a place where you set up camp for life or something you rent out, your property is ultimately an investment. For most, it’s a medium to long term investment where you usually sell at the time that’s right for your financial goals.

But say you became seriously ill, injured or worse and you or your loved ones were in a position where you couldn’t meet your financial commitments and make home loan repayments and what if the only way out was to sell? If the timing is off, you could lose money on your investment or, at the very least, make much less than you’d hoped for.

Knowing the help that could be available to you now could be all the difference between retaining your investment or otherwise.

Will the banks do anything?

When you can’t make home loan repayments, you may have certain rights under Australian credit law if you’re in what’s termed ‘financial hardship’. Should this happen, your lender may offer a temporary variation on your mortgage –for example your lender might reduce or pause your repayments.

Importantly, a hardship variation isn’t something the lender must agree to in all circumstances, nor is it something that may be automatically switched on repeatedly or for extended periods.

Other supports

There are other ways you can seek out help, from diving into your savings, asking for financial support from family members and friends, or taking on extra work if you or your partner are well and able to. If you’re a firm believer in planning ahead, we’d like to add life insurance as a potential option for your consideration.

Not just for your parents

It might feel very 1970s and not for you whatsoever, but life insurance has covered many Australians when home loan repayments just couldn’t be made due to illness, injury or loss of life.

We spoke with two ALI Group customers about their experiences with life insurance.

Young couple Joel and Anna had a guarantor loan

Anna was 15 weeks pregnant with their second child when Joel took himself to the doctor. Both thinking it would be nothing, the couple received a devastating blow when Joel was diagnosed with testicular cancer at the age of 24.

Joel didn’t have much sick leave and needed time away from work for chemotherapy. While Anna managed to take on a second job during Joel’s treatment, the income wasn’t enough to meet their living expenses and mortgage repayments. Feeling stripped of their financial freedom and stressed about needing to rely on their families, Joel and Anna worried about how this would impact their guarantors.

Then their broker, Craig, reminded them they had cover.

“The scary thought was, we were considering cancelling the plan,” said Anna. “We had it for two years and were thinking, when are we going to need this?…You just don’t think something like this is going to happen to a young family – but it did. If we had cancelled the policy, we would have been in a lot of trouble financially”.

Jamie was self-employed with no entitlements

Self-employed Jamie thought he was “fit as a fiddle and bulletproof”. Yet in the month before Christmas, the 56-year-old was diagnosed with colon cancer.

Having purchased an investment property with wife Fiona, the couple nearly didn’t go ahead with taking their life insurance policy. Said Jamie, “I thought it was just a crock of crap to start with”.

Upon receiving their $121,554 benefit, Fiona said “we were just numb, for actually like three days”. They used the benefit to cover bills, day-to-day expenses, their credit card, and mortgage repayments.

Food for thought

While considering some extreme scenarios right now may be the last thing you want to do, it could save you a whole heap of stress and hard times down the track. A lot can happen over the life of a home loan, after all.

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Read about the insurance 101's and find out more about preparing for large debt.

Read more about My Protection Plan here.

The current My Protection Plan has been available since 5 April 2021. The above is an example of a customer claim paid on a similar product distributed by Australian Life Insurance Distribution Pty Ltd ABN 31 103 157 811 AFSL 226403 (ALI).

IMPORTANT INFORMATION: My Protection Plan is issued by Zurich Australia Limited ABN 92 000 010 195 AFSL 232150. It is distributed by ALI. ALI’s AFS licence authorises the provision of general financial product advice only. This means that any advice provided to you by ALI and its representatives (including mortgage brokers appointed as its authorised representatives) in relation to My Protection Plan does not take into consideration your personal objectives, financial situation and needs, or any information held as a result of the provision of credit assistance by your mortgage broker relating to your home loan or other loans. Whilst the initial My Protection Plan quote you received was based on your loan amount, we are not recommending that this product nor any specific cover amount is personally suited to you and your circumstances. You should consider the combined Product Disclosure Statement and Policy Document (PDS) when deciding if this product is appropriate for you. You may also wish to review the Target Market Determination (TMD) which describes the objectives, financial situation and needs we have designed the product to meet. The PDS and TMD are available at aligroup.com.au. If you require advice specific to your circumstances, you should speak to a financial adviser.