Home sweet home: Is life insurance on your checklist when buying a home?

So, you're taking the plunge into homeownership? Exciting times ahead! Whether you're diving into the property market for the first time or upgrading to your dream abode, buying a home is a major milestone. But amidst the whirlwind of open inspections, mortgage applications, and packing boxes, there's one important question you might not have considered: do you need life insurance when buying a home?

Source: Australian Bureau of Statistics 

Understanding the importance of life insurance when buying a home 

Well, it's a bit like choosing the right playlist for a road trip – it depends on where you're headed and who's coming along for the ride. While life insurance isn't a mandatory part of the home-buying process, it can be a game-changer for securing your family's future. 

Think about it: whether you're snagging your first slice of real estate, levelling up to accommodate a growing brood, or dipping your toes into the investment property pool, buying a house means taking on a hefty financial load. And let's not forget about that ongoing mortgage commitment – it's like the never-ending to-do list of adulthood. 

Life insurance can be a safety net for your loved ones, ensuring they can keep up with the mortgage repayments and other financial commitments without skipping a beat. After all, owning a home is a big deal, and having a financial safety net can help you weather whatever storms life throws your way.

Source: Reserve Bank of Australia

Should life insurance be on your pre-move checklist? 

So, you've found the perfect home, the keys are almost in your hand, and you're ready to dive into the world of property ownership. But wait – have you thought about life insurance yet? 

Sure, amidst the chaos of house hunting and packing boxes, life insurance might not be the first thing on your mind. But here's the deal: even before you move into your new digs or rent it out, you're financially tied to that property. And that's where life insurance steps in. 

If you've already got a policy in place, great! But before you pop the bubbly in your new backyard, take a moment to review your cover. Make sure it's up to scratch for your new homeowner status. Check your policy details, from coverage levels to waiting periods, and ensure it aligns with your current and future financial needs. 

It's a smart move to have that chat with your financial adviser, give your policy a once-over, and make any necessary updates.

Source: Australian Bureau of Statistics 

LMI vs. life insurance: What's the difference? 

Alright, let's clear up some mortgage jargon. LMI, or lenders' mortgage insurance, is all about protecting the lender, not you. If you're diving into the property market and your deposit is less than 20% of the purchase price, you'll likely need to fork out for LMI. It's like a safety net for the lender in case you can't keep up with your mortgage repayments and the property sale falls short of covering the remaining loan amount.  

Now, life insurance? That's your personal backup plan. It's there to support you and your loved ones if the unexpected happens – like illness, injury, or worse. While LMI helps out the lender, life insurance steps in to look after your family's financial wellbeing, even if you're not around to do it yourself.

Do you need both LMI and life insurance? 

LMI and life insurance serve different purposes, so it's not unusual to have both in your corner. 

So, do you actually need both? Well, it depends on your situation. If you're diving into the property market, LMI might be on the cards. And if you've got a family relying on you financially, life insurance could provide that extra peace of mind. 

Locking down your mortgage with life insurance 

If the worst were to happen and you were to pass away unexpectedly, your loved ones will receive a lump sum payout from your life insurance – enough to cover the mortgage and any other costs tied to your property. 

So, while life insurance might seem like just another bill to pay, it's actually your safety net, ensuring your loved ones can keep the home you worked so hard to provide for them.

Navigating life insurance: What's right for your home 

There are a few options on the table. Here are the main ones you'll want to consider: 

• Income protection insurance: If you find yourself unable to work due to injury or illness, it dishes out monthly payments based on a portion of your regular income. Whether it's covering your living expenses or chipping away at that mortgage, it's there to keep you afloat when times get tough. 

• Life insurance: This one's all about protecting your loved ones' future if you're no longer around. It delivers a lump sum payment to your family, giving them the financial muscle to handle ongoing home costs and other commitments. 

• Total & permanent disability (TPD) insurance: Picture this as your backup plan if you're permanently disabled and can't work. It throws you a lifeline in the form of a lump sum payout, ensuring your disability doesn't derail your ability to cover those home-related expenses. 

• Trauma or critical illness insurance: If you're diagnosed with a serious illness, this insurance provides out a lump sum payment, giving you the breathing room to focus on your recovery without stressing over mortgage payments. 

Each type of insurance plays a different role, so it's all about finding the right mix to protect yourself, your loved ones, and your new home sweet home.