Mortgage Protection Insurance - How to protect your home and lifestyle?

Mortgage protection insurance covers the loan balance of your mortgage should anything happen to the mortgage holder(s).

However, mortgage protection insurance is more than just cover for your mortgage. You and your family depend on your home and your family needs protection should anything happen to you and/or your partner especially if you are a parent. It's absolutely essential that a mortgage is insured and any financial hardship on your loved ones can be averted.

In Australia, many homeowners have mortgages that are as high as 100% of the value of their homes, in some instances even more than that. In other words, the banks own your home not you. Imagine you or your partner won't make it home tomorrow due to a freak accident. Could you still afford to keep the family home and your lifestyle? - For many people the answer is NO.

Mortgage protection insurance can help

According to research done by ING Australia in June 2010:

• almost two-thirds (63%) of respondents had less than a week's notice of their spouse or parent dying, and almost half (43%) found out about the death, post the event.
  
  
• In the two years after the loss 32% moved house as a result of financial pressure and 56% went on fewer family outings.
  
  
• 48% of children had worsened in academic performance and 17% changed school as a result of financial pressure.
  
  

(Source: Picking up the pieces report - understanding the impact of parental death on children, ING Australia, July 2010)

Mortgage protection insurance can help avoid you becoming a statistic like the above. Isn't it already enough to suffer the loss or disablement of a loved one? Can't we all do without the additional financial burden in such circumstances?

We don't want these additional financial worries in times of pain and grief. Proper mortgage protection insurance can ensure that you keep your lifestyle and are able to move forward and beyond difficult life events.

How does mortgage protection insurance work?

At the start when you take out a loan, i.e. mortgage on your home, you can sign up for mortgage protection cover usually in the full amount of your outstanding mortgage balance. This is also possible in situations where you refinance your existing mortgage. What you get is a life insurance policy on the mortgage owner(s) so that if you die or become totally and permanently disabled the insurance company will pay you an amount equal to your mortgage balance.

It can also provide you with a monthly income benefit in the event of total or partial disablement through injury or sickness, i.e. you won't have to die or end up as a paraplegic to be able to access financial support. Such income benefits can then be used to cover regular mortgage payments.

Insurance companies require you to be in paid full-time employment to be eligible for these extra monthly income benefits. If you are not fully employed all the major other benefits such as lump sum payout on death and total permanent disability are still available to you.

Some insurers also pay you a trauma or critical illness benefit as part of your mortgage protection insurance policy or assist you with mortgage repayments even if you happen to be unemployed due to retrenchment.

It's best to consult a financial planner or risk insurance specialist for these specific product features. They will be able to explain under which circumstances these product features apply and can give you a comparison of different mortgage protection insurance products that are available in the Australian marketplace.

If you had a heart attack would you rather lose your home or your mortgage?

Mortgage protection insurance is life insurance tailored to the size of your mortgage. However, it is linked to the lives insured which is you, the mortgage owner(s). If you have other loans such as for investment properties or investment loans for shares and managed funds, covering your mortgage only may not be enough to secure your lifestyle in these circumstances. You may have to increase the total amount insured, if possible.

Mortgage protection insurance can do away with your mortgage worries but is not a substitute for comprehensive life insurance for you, your spouse and/or children. You may have additional needs and require other types of life insurance to ensure the financial wellbeing of your family such as trauma or critical illness insurance and income protection which can provide you with benefits that you couldn't claim for on your mortgage protection cover. Mortgage protection might also be limited to a 10 year period or up to age 65 after which cover would cease.

Mortgage protection insurance is minimal but essential for every household.

Just ask yourself if you had a death in the family would you rather lose your home or your mortgage?

Mortgage/loan protection example

It is important to know what mortgage protection insurance features can offer and what the limitations are in contrast to comprehensive life insurance policies. Let's make an example to illustrate the possible features of mortgage protection cover.

Say, your outstanding mortgage balance was $500,000 at the start. Accordingly, your mortgage protection insurance was set at the same amount and hasn't changed since then. The policy also provides trauma cover for possible events such as cancer which seemed a nice add-on feature at the time.

As a result, you'd get $400,000 to pay off your mortgage and nothing more even though you were insured for $500,000. - You can't help feeling short changed and are left with a shortfall of $100,000.

The feature of this particular mortgage protection product goes by the actual mortgage balance only. The policy documents actually state that exact example above. Another condition, however, says that you could have received $500,000 but only if the mortgage was first paid off in full.

These features and conditions are in stark contrast to full life insurance products that would have paid your dependants the full $500,000 on death without any of these conditions attached. This would have paid for the mortgage in full and left them with $100,000 in cash to go towards funeral costs and lost income from you, one of the main breadwinners of the family.

Mortgage protection insurance with add-on features such as trauma cover can also help with other problems than death. For example, let's assume you had a non-fatal cancer event in year 2, the insurance company would pay your claim and you'd receive an amount of $73,000. That's great. You probably didn't know that mortgage protection could offer you this.

Let's take this a step further. Your health is fine after that cancer scare until you die, as discussed above.

In this situation, the insurance company won't pay a death benefit claim at all because it was a condition of cover that there wasn't any trauma claim paid prior to death.

A scenario like this could leave your dependants without any funds at all. Unfortunately, these are possible limitations of mortgage protection insurance. It therefore pays to check exactly how the features of an insurance product work and compare your essential mortgage protection offer to their big brothers too.

Comprehensive life insurance products are designed to avoid such gaps and might be more accommodating for your goals and needs than pure mortgage cover. Having said that, the benefits of mortgage protection insurance should not be underestimated.

Mortgage protection insurance is essential. - It is a 'must have' in the absence of any other cover.

Make mortgage protection insurance the core of financial certainty!

In Australia, we have an acute under-insurance problem with many households preferring to insure their homes and cars but not their lives. Research done by Roy Morgan shows us the following percentages of cover taken out by everyday Australians:

• 71% of consumers have motor vehicle insurance.
  
  Note that a vehicle is stolen every ten minutes in Australia. (Source: National Motor Vehicle Theft Reduction Council – Theft watch May 2009)
  
  
• 60% of consumers have contents insurance.
  
  Note that in Australia someone is burgled approximately every two minutes. (Source: Australian Institute of Criminology, April 2009 - Unlawful Entry With Intent statistics for 2007)
  
  
• 54% of consumers have building insurance.
  
  Note that in Australia each year there are over 10,000 house fires. (Source: Australian Bureau of Statistics, Australian Social Trends 2000 – Housing – Housing Stock: Home fire safety)
  
  
• 16% of consumers have life insurance.
  
  Note that in Australia each year one in three men and one in four women will be diagnosed with a cancer in the first 75 years of life. (Source: Australian Institute of Health and Welfare – Cancer – Australian cancer incidence statistics update, December 2008)
  
  

You can make mortgage protection insurance the core protection for your family and achieve financial certainty knowing that you and your loved ones will be protected for the big disasters in live with the least financial impact possible.

Going beyond mortgage protection insurance

Today, all our mortgage holders are offered mortgage protection insurance to make sure they can survive any nasty surprises that life is throwing at them without having to put their house on the line. Financial planning clients typically go one step further to ensure that the surviving spouse and children are looked after many years beyond their death to assist family groups not only to get rid of mortgages but to cover additional financial stress such as education costs for children or paying out a business partner.

In fact, it pays to do an insurance health check for yourself and your loved ones on a regular basis like you're doing a check up with your doctor.

Insurance is like a parachute. - If you don't have it when you need it most, it's too late!

What are your options?

Mortgage protection insurance is essential and due to this fact our mortgage brokers always ask clients if they want to look at the benefits such cover can offer. Comprehensive life insurance might be required and in-between the two you can chose and customize as many or as little features and benefits as needed.

You can also submit your details from this page and we'll assist you in finding the insurance product that suits you.

Don't leave the survival of your family to chance. You don't want them to move house or find out that they'll get more for your car than for your life should you die in a road accident.

More information:

Types of Life Insurance
Income Protection Insurance
No medical exam Life Insurance
Small Business Insurance
Life Insurance Quotes

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