Can life insurance and income protection insurance help when buying a property?

By AAMI 16 September 2021

Buying a property, whether your first or your fifth, is a very exciting time. It’s stressful, but thrilling, overwhelming but invigorating. As a huge financial investment, the moment your pen is put to the contract, you start dreaming of what your life will be like in your new, dream home.

The nerves, anxiety and thrill are all legitimate and understandable emotions - it is, after all, the largest asset you’ll likely ever own.

In the lead up to the property purchase, though, there are many factors to take into consideration. Not only do you need to work out the area you want to live in, what kind of home you need, what your borrowing capability is and what you can afford, you also need to consider what protections you have in place to cover the potential mortgage if you were unable to make the repayments.

It’s not a particularly fun thing to think about, nor is the due diligence a particularly exciting thing to go through. It’s not as creative as thinking about where your furniture is going to go or what you’re going to do with the spare room. But the end result, of being able to purchase and live in your very own home, is worth the extra paperwork you may have to do.

How life insurance and income protection can help cover repayments

Hopefully, nothing will happen to you and you’ll be able to continue to make your mortgage repayments, without question, each month. But what would happen if you couldn’t work due to an accident or illness, or worse, if you were no longer around to work at all? Having life insurance can be a big help in supporting you or your family to cover the repayments – which, according to the last Census, averaged more than $2100 in Sydney and more than $1800 in Melbourne.

AAMI Comprehensive Life insurance can provide up to $1.5 million in cover for your family to help pay the mortgage and other necessary expenses in the event of your death or diagnosis of a terminal illness. On top of this, with AAMI Income Protection, you can receive up to 75% of your income, up to $10,000 which can also go a long way towards covering your mortgage repayments if you needed to take an extended period off work due to sickness or injury.

Should you take out life insurance before moving into your home?

Purchasing a property can be an emotionally-charged and very busy time. There’s a lot going on between dealing with real estate agents, lawyers, banks and then the actual move. It’s tempting to leave all other major expenses until after you’re set up in your new home or once you’ve finalised any arrangements around the investment property.

Regardless of whether you’re living in the property or you have tenants, you’re still financially responsible for it and should be taking steps to make sure you’re financially protected right from the get-go.

If you already have life insurance and income protection in place, going through the financial exercise of purchasing a property is a good time to review your policy, especially to make sure it can cover the increase in debt you’re taking on. Look at the level of cover, the waiting period, the benefit period and what you are exactly covered for. If needed, speak to your insurance provider to update your policy.

Do you need both LMI and life insurance?

For many lenders, it’s a requirement that customers take out lenders’ mortgage insurance (LMI). Usually, it will be mandatory unless you can pay at least 20% of the purchase price as a deposit.

This means if you default on your loan or the sale of the property doesn’t equal the unpaid value of the mortgage, lenders can claim on the LMI to make up the shortfall.

Remember though, LMI insurance protects the lender, not you

In contrast, life insurance provides a lump sum to you and/or your family, which can be used however you like, however commonly it can be used to help cover your mortgage repayments. It could help keep your family home after you pass away.

LMI and life insurance are very different products and need to be dealt with separately, so it’s not uncommon to take out both.

Your life is unique, your home is unique, and your life insurance policy should reflect this. Make sure you find a policy that is flexible and can be adapted as your circumstances change. Get a quick quote online today or contact AAMI Life on 13 22 44.

AAMI Life Insurance products, other than in some circumstances the Redundancy Benefit, is provided by TAL Life Limited ABN 70 050 109 450 AFSL 237848 (TAL Life) which is part of the TAL Dai-ichi Life Australia Pty Limited ABN 97 150 070 483 group of companies (TAL). TAL is not part of the Suncorp Group. TAL uses the AAMI brand under licence from the Suncorp Group. Any advice on this page in connection with the Life products is general in nature and is provided by Platform Ventures Pty Ltd ABN 35 626 745 177 AFS Representative Number 001266101 (PV). PV is part of the Suncorp Group and an authorised representative of TAL Direct Pty Limited ABN 39 084 666 017 AFSL 243260 (TAL Direct). General advice does not take into account your individual needs, objectives or financial situation. Before you decide to buy or to continue to hold a Life Products you must read the relevant Product Disclosure Statement. The Target Market Determination (TMD) for the product is available on our website.