Better Safe than Sorry - Get the right insurance cover
Owning your own home is great, but because it is probably the most expensive purchase you will ever make, it makes sense to secure your investment, and your familys financial future, against any unforeseen event with the right insurance cover. Lets look at the insurance choices you will have to make.
BUILDING OR HOMEOWNERS INSURANCE is an essential requirement when buying a house. No bank will grant you a home loan without this insurance, which protects the buildings on your property. Building insurance covers fire, storm and other natural hazards but does not protect your premises from normal wear and tear. Your monthly insurance premium is often included in your bond, although you have the choice of using your own insurer. You do not have to use the banks dedicated insurance broker where you can obtain lower premiums via your own broker.
LIFE ASSURANCE is not mandatory, but it is wise to cover the value of your bond in the event of your death. There are basically two types of life cover:
REDUCING-TERM INSURANCE IS RELATIVELY CHEAP, but your cover does decrease year by year as the amount outstanding on your loan decreases.
LEVEL-TERM INSURANCE IS MORE EXPENSIVE, but will pay out the maximum amount loaned to you at all times, no matter how much you still owe.
Your bank is likely to offer you life assurance when you take out your home loan but you are at liberty to arrange your own. If you decide to shop around youll find that premiums vary between insurance companies, but your health, age, lifestyle and habits such as smoking and alcohol use will affect your premium. As a general rule, the younger and healthier you are the lower your premium. Ask your Bond Choice Consultant for independent advice.
For a higher premium, you can take out a life or endowment policy that will ensure a dividend at some time after the standard twentyyear loan period has expired.
PERMANENT DISABILITY INSURANCE helps alleviate some of the tremendous financial strain that losing a breadwinner to disability can cause for a family, which is why some banks offer this cover as part of your homeowners insurance package. Premiums covering disability will raise your monthly debt but may provide crucial financial security in the future.
HEALTH INSURANCE is a cheaper alternative to a conventional Medical Aid. It will not affect your home loan directly but will give you a measure of financial security if you are hospitalised for a major illness or injury.
HOUSEHOLD CONTENTS INSURANCE secures your furniture and other possessions against loss through theft, fire and other unavoidable damage. Many homeowners find that an all-risk, all-purposes policy including motor vehicle/s is the best option. These policies are widely available and the premiums are more affordable than insuring each item separately.
THE GOLDEN RULES OF INSURANCE
- Remember that the vast majority of insurance brokers are paid commission to sell policies by the insurance companies, so shop around for the best package.
- Read all insurance documents carefully to see exactly what kind of cover you are getting, the conditions, the costs and the excesses.
- Itemise the possessions secured under your Household Contents Insurance and make sure they are properly valued and adequately covered, as insurance companies may challenge claims on these policies if values are not at realistic replacement values.
- Revalue your property and assets regularly. If you have not revalued your property in the last two years, youll probably find that you are currently undervalued for insurance purposes.
Courtesy Bond Choice Home Loans