Why you need life cover when applying for a bond
Did you know that most banks insist that you have life cover?
The need for life insurance when you apply for a bond is an important decision to make in the case of a single family member being responsible for the monthly bond repayments.
Protecting your family against financial loss
In life, there are no guarantees and if the family member responsible for the bond payments has an accident or illness resulting in death, the remaining family are left with financial uncertainty and may be forced into a position where they will need to sell the home in order to cover the outstanding bond payment.
This is a good reason for the potential home loan applicant to consider life cover or in other words, mortgage protection cover that will ensure that their dependents will still have a roof over there heads in the event of a traumatic event such as death.
Settle outstanding debt
Taking out life cover or life insurance is a means of ensuring that in the case of death, that the money that will become available will be able to settle all outstanding debts including the home loan.
On the other hand, if you were to choose mortgage protection insurance, which is essentially another form of life cover, the limitation of this is that it will only cover the home loan and not any other debts which may have accumulated.
Most banks insist on life cover for bond applications that are approved for clients whose salaries are less than a set amount. Whether or not a bank makes life cover mandatory for the successful application of a bond, it is highly recommended that life cover is in place.
Having the life cover in place means that, if unfortunately, you should pass away, the estate and your family will not be left with the huge financial burden of having to pay off the bond, or sell the house in order to cover the remaining costs.
Should you take life cover from the bank?
What you must remember is that you are not obliged to take any of the life cover that your bank may offer. You do have the right to choose whichever insurer you would like to provide you with life cover.
If you have existing life cover
If you do have existing life cover in place, before you purchase the property, you must adjust the life cover so that it covers the cost of the bond if anything were to happen to you. If you do not adjust the life cover to include the cost of the bond, the estate will be left in a position where the cover can only cover the cost of the bond and not the expenses for which it was originally intended such as education, and other monthly living expenses.
You have two options when it comes to selecting which type of insurance to take. You can increase your existing life cover to include the bond amount or you can take credit life cover which covers the bond debt. Leaving your original life cover in place.
So the long and the short of it is, for you and your family's peace of mind, it is advantageous to have life cover when applying for a bond.