Do you really need to work to pay your home loan?

TAKING out a loan requires a regular income to make repayments, meaning borrowers need to be consistently employed.

So you may ask yourself why some purchasers negate to lock in insurance cover to protect their ability to cover the loan when so many of us have hundreds-of-thousands of dollars owing, and an income that is critical to paying off that loan.

The average national house value is $612,200 and the average size of new mortgages nationally $444,000. In New South Wales the average mortgage size was the highest at $544,000, followed by Victoria at $439,000, WA at $428,000, NT at $375,000, Queensland at $374,000 and SA at $349,000.

I guess the question is: What if you couldn't work? What would happen to the property you're paying off?

A recent study by ASIC showed that under insurance is still a serious problem in Australia. The study found up to 60% of families with dependents didn't have sufficient life insurance to financially care for the family for any more than 12 months should the main breadwinning parent die.

Many homebuyers rush through the home loan process to settlement and ignore one of the most important questions. If you couldn't work, who in your family would pay the home loan?

Unforeseen accidents and terminal illnesses are not possibilities many people like to consider. However, a "no worries" attitude can be dangerous.

It's reported that at least 20% of Australians aged 21 to 64 will suffer some unfortunate event in their lives that will leave them incapable of working and in cases of illness, there was no history in the immediate family.

A mortgage is generally the biggest debt a person will take on in their life. No-one should be taking on a mortgage without covering their risk.

When you consider that just about every car owner has car insurance, it's amazing that so many Australians are inadequately insured when it comes to their home and providing for their family.

For those that do get insurance, I find that some still deliberately underinsure their house. If you do this, you could be headed for trouble if you needed to draw on that insurance. For instance, if you take out 10% less than the value, when an insurer comes to pay you they actually in practice will only pay 90% of the policy you are insured for. In other words, make sure what you insure your house for is accurate.

Insurance policies should begin at settlement, when you take ownership of the property. This is when you take on the risk of owning the property and repaying the mortgage.

No-one likes to talk about life insurance products, so perhaps we can call them debt-repayment insurance?

Yes, they cover death, incapacitation and terminal illness. But one of the essential properties is to ensure household debt can be repaid.

The most crucial aspects of these insurances to get right from the beginning, is the one that insures your own income. It keeps food on the table, bills paid and a roof over your head.

In the case of the breadwinner passing away, death benefit polices allow for a lump sum for your dependents to pay off the mortgage and to care for your family. Death benefit policies can include Total & Permanent Disablement (TPD) cover, which is a lump sum payable to your dependents if you have an accident and are unable to work again.

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