When you buy a home and get a mortgage there is a lot to learn and take in. Your bank or mortgage adviser will want to talk to you about getting insurance, but it can be hard to know what is a must have and what is a nice to have, and who you should take out insurance with.
Often when insurance advisers discuss personal insurance needs with a client we use their mortgage as a starting point. It is not the only factor to be taken into consideration, but your mortgage does influence the types of insurance you choose, and how much insurance cover you need to have.
It can be a busy time with a lot to do, which makes it tempting to take the easiest option, but it is worth taking time to consider a few things.
Getting insurance cover is an important part of the process of getting a mortgage – and one the bank will want taken care of before things go further. This includes life insurance, trauma insurance, income insurance and mortgage insurance.
When you get a mortgage your bank will want to sell you insurance as well.
All insurance is not created equal, and we are very cautious of policies offered by banks. These can fall short of the standards we expect from the providers we recommend to our clients. This can include non-standard exclusions in the fine print, a lack of transparency, a rushed application and disclosure process, and the sub-standard definitions of covered conditions, making them harder to claim on.
The size of your mortgage is a good place to start when deciding how much life insurance cover to get. Knowing that, should something happen, those left behind do not have to worry about mortgage payments and losing their home provides significant peace-of-mind.
From there you need to think about your lifestyle, any debts that need to be covered and how long the beneficiary needs to be able to live on the insurance.
There is a perception that income protection is expensive, but you don’t always need to cover your entire income. Your greatest asset is your ability to earn an income, so income protection is important, but when you have a mortgage you should also think about mortgage protection.
Generally you cannot claim income protection and ACC at the same time – this is because the Insurance Act states that you cannot be better off on insurance than you would be if you were working.
However, mortgage protection is a subset of income protection designed to cover your mortgage repayments should you be unable to work. Importantly it has no offset clause – this means if you are unable to work you will receive your mortgage cover payments, regardless of whether you are also covered by ACC or by your income protection.
When you set up a mortgage protection plan you can choose how quickly you want the cover to start, such as four weeks, eight weeks or twelve weeks, and how long you want the cover to continue – anything from three months to the end of the cover term.
Trauma cover can also be used to cover your mortgage payments. The key advantage of trauma cover is that it is a once off pay out for a traumatic medical event and you can use it how you best see fit.
If you are getting a mortgage and want to discuss which insurance options are best for you, get in touch with one of our advisers.
Here are a few reviews from some of our existing clients around New Zealand