Australian mortgage holders should view personal insurance – such as life insurance and income protection – as a ‘not negotiable’, according to a mortgage advisory group.
Smartline Personal Mortgage Advisers said taking on any significant financial commitment, such as a home loan, brings with it the need to protect a client’s financial interests should illness or death occur.
“In some countries it’s compulsory to take out life insurance at the same time as you take out a mortgage,” said Smartline’s executive director Joe Sirianni.
“That makes a lot of sense, because the reality is that if something goes wrong, personal risk insurance is generally the difference between financial ruin or security.
“In a country like Australia where it’s not compulsory, it’s important people are aware of the risks associated with taking on a large debt without the protection of insurance. We strongly advocate that this is the ideal time to consider financial protection.”
With many people having life insurance and Total and Permanent Disability (TPD) insurance as part of their superannuation policy, they often mistakenly believe they are adequately covered.
However, most people Smartline’s advisers speak with have only $150,000 to $300,000 life insurance cover within their super. When you consider the average Australian mortgage is about $300,000, it’s obvious that more coverage is needed.
“It’s also important to get advice on how much insurance is enough,” said Sirianni.
“While people often take out life insurance to clear debt, such as the home loan, we generally recommend a broader approach to how the insurance might be applied.
“Taking out life insurance to clear debt – usually the mortgage – so that your family is not burdened should you pass away, is a very admirable thing to do. However, there are many more reasons to think beyond home loan debt.
“For example, if you stay at home to care for your children, how will your partner cover things like childcare, education and home duties should you pass away?”