A new mortgage can materially increase the amount of money your household is committed to paying each month. That makes buying a home a useful trigger to review whether your personal insurance still matches your financial responsibilities.
Why Does a Mortgage Change Insurance Needs?
If one borrower dies, becomes permanently disabled, ill due to certain defined conditions, or cannot work for a long period, the remaining household may still need to meet the mortgage repayment. The larger the loan relative to household income, the greater the financial pressure may be.
Review Life Insurance
Consider whether the surviving household could manage the mortgage, other debts and everyday costs if one spouse passed. This does not automatically mean life cover should equal the entire mortgage. Existing savings, super, the surviving partner’s income and other assets also matter.
Review TPD Insurance
A serious permanent disability can create both income loss and additional medical or care costs. TPD can provide a lump sum if the policy definition is met.
Review Income Protection
If your mortgage depends on regular employment income, consider how repayments would be funded during an extended period of illness or injury.
Review Trauma Insurance
This kind of insurance covers being diagnosed with particular and defined conditions. If one spouse gets sick there may be significant medical bills and other expenses that need to be met, and this kind of insurance in right circumstances can assist.
Check Existing Insurance Through Super
You may already hold life, TPD or income protection through super. Check the amounts and policy terms before arranging additional cover. Trauma insurance is held outside of super is paid personally.
Moneysmart explains what to check when insurance is held through super.
Build an Emergency Buffer Too
Insurance is not a substitute for accessible cash. A home owner may still need savings for shorter-term expenses, waiting periods and costs that are not insured.
Review Cover as the Mortgage Changes
Insurance needs may change as the loan falls, income rises, children arrive or your investment and super balances grow.
If buying a home has materially changed your financial commitments, complete the Setch Group Financial Healthcheck.
Frequently Asked Questions
Do I need life insurance just because I have a mortgage?
Not automatically. The decision depends on who relies on your income and how the household would meet the debt if you died.
Does the bank require personal life insurance?
Requirements can vary and depends on whether the loan is a consumer loan. Personal insurance should be assessed based on your own protection needs, not solely lender requirements. Generally, a lender cannot force or make a condition of approval for a consumer loan, you having life insurance or income protection.
Should insurance reduce as the mortgage falls?
Potentially, but debt is only one part of the calculation. Family and income-replacement needs should also be reviewed.
This article contains general information only and is not financial advice.
