Protecting yourself and ensuring you can always pay your mortgage
As a borrower, taking out a loan of any kind can be an overwhelming and complex process. This isn’t helped by all the different financial product naming conventions, and acronyms that you will undoubtedly encounter.
The “Great Australian Dream” is to own your own home, with 70%* of the population doing just that. Unfortunately saving for your dream property is becoming more and more difficult. With rising house prices, generating the traditional 20% deposit required to get a loan is harder than ever. Thankfully with the introduction of Lenders Mortgage Insurance (LMI), borrowers can get onto the property ladder much sooner with a smaller deposit.
1) Why LMI (Lenders Mortgages Insurance) does not protect you
LMI was introduced to enable lenders to offer higher percentage loans while reducing their risk. This insurance is paid by the borrower (you) typically as a one off payment to the lender – either at settlement or added (as a capitalised amount) to the monthly repayments. Lenders will stipulate whether they require you to take out LMI. This is most likely if you have a deposit less than 20%.
2) Who does LMI Protect?
One of the most important things you need to understand is that LMI covers the lender NOT the individual.
LMI covers the lender in the unfortunate event a borrower is not able to maintain mortgage repayments and defaults on their loan. LMI provides assurance to the lender that the loan will be repaid to them. This would not protect your assets. Though the lender is covered, you would still be at risk of losing your property.
3) How do I protect myself and my mortgage payments?
To protect YOUR interests and not the banks, you need ‘Mortgage Protection Insurance’.
Protection products vary and can include cover for a number of events such as loss of job, injury, illness, disability and death. The cost of cover will depend on numerous factors including; the insurance product you select, the insurer, the benefit amount, what is covered, your age and your health. Choosing the right kind of cover can be daunting, however there are simplified loan protection products available that are easy to understand so you can be sure of what you’re getting. Many are available via your mortgage broker.
4) What if I can’t afford to purchase Loan Protection insurance?
There is no actual requirement to purchase ‘Loan protection Insurance, however we would highly recommend you do. With all the fees and costs associated with buying property, adding on premiums for loan protection can seem like an avoidable expense.
What you need to consider is whether you can afford not to have it? Do you have savings or other assets you could use if you became sick and couldn’t meet your repayments?
We all happily insure our car, home and our contents but what about your biggest asset of all: you and your earning power.
If you are taking out a loan with less than a 20% deposit, unlike LMI you get to choose whether or not to take out loan protection. The most important thing you need to be aware of is the risks you’re left exposed to personally if you don’t.
Loan Protection Plan
Many Australians with mortgages do not have adequate cover in place to service their loan in the event they lost their job, suffered a serious illness, injury or death.
It’s important that you take the time to consider how you would meet your loan repayments should the unthinkable happen. ALI Group’s Loan Protection Plan is a simple, easy to understand and affordable solution that provides peace of mind by helping protect you and your family, your assets and your lifestyle.
Loan Protection Plan benefits at a glance:
- Death and Terminal Illness Benefit(12 months life expectancy). Pays the loan amount rounded up to the next $10,000 this is subject to a minimum of $50,000 and a maximum of $750,000
- Living Benefitcovers 11 serious medical conditions. Pays 30% of the Death Benefit
- Up to 3 monthly benefits for involuntary unemployment occurring within the first 12 months of the policy (a one month waiting period applies)
- 30 days free cover– valuable time for you to evaluate your protection needs
- Multiple borrowers can be covered including non-applicant spouses of borrowers
- No medicals requiredand cover available for all occupations
- Benefits are paid directly to youand can be used for any purpose
Home and Contents Insurance
Home and Contents insurance provides cost-effective and quality protection against a wide range of defined events – those unexpected occurrences which could cause major damage to your home and possessions. Some of the features of the policy include:
- New for old replacement cover for buildings
- New for old replacement on most contents
- Cover for high risk items
- Liability insurance
- 15 year electrical motor burn out on household electrical items – an extra without paying extra
- Theft of trees and plants
- Food spoilage
Cover for a wide range of events
Home and Contents insurance covers you for loss or damage caused by: fire or explosion, lightning or thunderbolt, earthquake or tsunami, malicious acts, riot or civil commotion, theft, storm, rain or flood. You are also covered for the newly introduced flood cover.
