Mortgage holders should view personal insurance as a ‘not negotiable’, says Smartline Personal Mortgage Advisers’ executive director, Joe Sirianni.
Sirianni says taking on any significant financial commitment, such as a home loan, brings with it the need to protect a client's family’s financial interests should illness or death occur.
“In some countries it’s compulsory to take out life insurance at the same time as you take out a mortgage. That makes a lot of sense, because the reality is that if something goes wrong, personal risk insurance is generally the difference between financial ruin or security.”
Sirianni says that, in a country like Australia where personal insurance isn’t compulsory, it’s important people are aware of the risks associated with taking on a large debt without the protection of insurance.
“We strongly advocate that this is the ideal time to consider financial protection. With many people having life insurance and total and permanent disability insurance as part of their superannuation policy, they often mistakenly believe they are adequately covered.”
The majority of Smartline clients have $150,000 to $300,000 life insurance cover within their super - and that, according to Sirianni, isn’t enough.
“When you consider the average Australian mortgage is about $300,000, it’s obvious that more coverage is needed.”
He says there’s also the danger that if a client stops working for a period of time and contributions aren’t being made to their super fund, they may not actually have insurance coverage.
“If you already have some form of insurance through your super, it might pay to retain this but also look for additional insurance outside of super that will provide a high level of protection. It’s also important to get advice on how much insurance is enough.”
Sirianni says that while people often take out life insurance to clear debt, such as the home loan, he generally recommends a broader approach to how the insurance might be applied.
“Taking out life insurance to clear debt – usually the mortgage – so that your family is not burdened should you pass away, is a very admirable thing to do. However, there are many more reasons to think beyond home loan debt. There is a significant personal and financial cost associated with death, and while it’s unpleasant to speak about these things, it pays to spend time considering your needs.