Key takeaways
- You do not have to buy life insurance when taking out a mortgage, but it might be worth it.
- The right cover could pay off your mortgage if you die. It can also mean your loved ones are able to pay for their ongoing bills.
- Only home insurance is compulsory when you buy property.
Do I need life insurance to buy a house?
No, you aren't legally obligated to take out life insurance when you buy a home. It's not like home insurance which you almost always need to have in place before you move in.
However, taking out life insurance when you buy a home can offer financial security and be worthwhile, depending on your circumstances.
Owning a home and life insurance
For many people, owning a home is a trigger for buying life insurance. This is because a mortgage is such a substantial debt and your ability to pay the mortgage is contingent upon you being alive and healthy enough to continue working.
So no, it’s not mandatory, but it’s certainly a good idea, particularly if you have a family or a partner that relies on your incom
Can life insurance cover my mortgage repayments if I can’t work?
Life insurance only pays out if you die or become terminally ill.
If you’re looking for types of cover that can support you to make mortgage repayments in the event you can’t work, consider the following:
- Income protection insurance. This can help cover mortgage repayments if you find yourself unable to work due to sickness or injury. It can pay you around 75% of your monthly income.
- Total & permanent disability insurance (TPD). This covers you if you get severely injured or sick. For example, you become blind or paralysed and the permanent disability keeps you from being able to work.
- Trauma insurance. This can cover you if you are diagnosed with a critical illness, like cancer.
"Mortgage protection insurance covers your home loan repayments if you're injured and can't work. But an income protection insurance policy can cover a much wider range of expenses and is probably more useful for most people. Check to see if you already have life insurance cover through your super fund too."
What’s the difference between lenders’ mortgage insurance (LMI) and life insurance?
They’re two very different products.
LMI is a term you’ll likely hear often while you’re buying a home. It is an insurance product that protects the lender. The homeowner is responsible for paying LMI, unless they have a 20% deposit for the property.
Life insurance is designed to financially protect you and your family in the event of death or severe illness. It can be brought up around the time you’re purchasing a home simply because it’s such a large debt to take on and can be wise to
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