Whether you’re taking out a mortgage to purchase your first home, upgrade to a new home or purchase an investment property, taking on such a large debt always involves some level of risk.
What if I have an accident and I’m off work for 3 months?
What if I’m bedridden with an illness for months on end?
What if I have a stroke and can’t return to work?
What if …?
While none of us like to dwell on such ‘what if?’ scenarios, they can and do happen.
Problem is, many Australians aren’t properly planning for them.
Wouldn’t last 3 months off work
Independent research conducted on behalf of ALI Group has found that 48% of Australian mortgage holders worry about being diagnosed with a serious illness at some point in their lives.
And if a critical illness prevented them from working for 3 months or longer, more than half of Australian home loan borrowers (55%) would need to sell their assets (such as the family home or investment property) or rely on the welfare of family and friends.
Only 33% of respondents said they would fall back on an insurance policy.
I’m covered by my super fund, right?
If something happens to me, I’m covered by my super fund, right?
Many super funds do provide members with death and disability insurance. Income protection may also be included or offered as an optional extra.
But will that be enough?
According to statistics cited by Canstar, around 83% of superannuation members sign up for the default insurance cover available through their super fund. Depending on the super fund, the default option may provide basic life and disability cover of perhaps a couple of hundred thousand dollars. However, a $200,000 life insurance policy won’t come close to paying off the average Australian mortgage.
Housing finance data for July 2017 from the Australian Bureau of Statistics (ABS) shows the average Australian mortgage is currently $370,500. For first home buyers, the Australian average drops only slightly to $321,800.
In New South Wales, the average home loan (the highest of any state), is $435,700.
Basic life insurance cover through super, therefore, may not be enough to repay the mortgage for many Australian families.
How much insurance do I need?
The insurance required to protect your family’s financial security (and home) will naturally depend on your individual situation.
The amount of life insurance cover you need should take into account all your outstanding debts, such as paying out your mortgage, credit cards and personal loans. It should also help provide for your family’s regular living expenses and other ongoing costs such as annual school fees.
If you were to suffer a disability and unable to return to work, not only would you need to pay out your mortgage and other debts, you may also need to cover additional expenses in relation to your disability. These could include ongoing medical or rehabilitation costs and home renovations to improve accessibility.
Income protection can provide regular monthly payments of up to 75% of your regular earnings while you’re off work. This can help cover mortgage repayments as in the real life case study below. If you have default income protection through your super, check the details such as the percentage of salary payable each month, what you are covered for, waiting period and maximum benefit period.
Also known as critical illness insurance, this cover is not available through super. It pays a lump sum benefit of up to $2 million if you suffer a specified critical illness such as heart attack, stroke, coma, blindness, malignant cancer, MS or any other condition specified in the policy. Trauma insurance can help cover expensive medical bills and ongoing rehabilitation.