Know Risk is a community education program designed by the Australian and New Zealand Institute of Insurance and Finance (ANZIIF) to improve our understanding of insurance and how it relates to managing the many risks we all face in life.
Income Protection: I bought a house without any
You’re at an auction, you’re standing in the crowd, trying to be as nonchalant as you can, but your heart is pounding and the tension is killing you. The Auctioneer is waving his hand in the air and he shouts the word you most want to hear. Sold!
Congratulations, you just bought your first home – and now have your first mortgage!
So while you’re high-fiving everyone and sipping on your celebratory beverage, have a quick think about what happens to that mortgage if you have an accident or get sick – really sick. What will happen if you can’t work?
It’s something most young people don’t really think about and getting personal insurance, like life or disability insurance and income protection is usually far from their thoughts. I know when we bought our home, I didn’t think about it. To this day, it’s something I regret.
About six months into our new life in our new home, I became ill, very ill, and couldn’t work for eight months. This loss of income and the added medical bills meant we couldn’t pay our mortgage. We were stressed about my health and whether we could keep our house and had to take out loans from family and friends just to get by. In the end, I got better and we made it through, but honestly, at times, I didn’t think we would. The sad thing is, all that stress could have been avoided.
These days, insurance is essential for anyone with a home loan or any form of significant debt. It shouldn’t matter if you’re a 25-year-old buying your first house or a 45-year-old upsizing the family home for the third time, insuranceis a must.
So what are the options? Here’s a quick breakdown on what’s out there.
Something I wish I had at the time, income protection covers up to 80% of your pre-tax salary if you are temporarily unable to work due to illness or injury. The best part is, the premiums are tax deductible.
Trauma insurance (also known as recovery insurance)
This type of cover pays out a lump sum if you are diagnosed with a serious illness such as cancer, have a heart attack or stroke, or undergo major surgery.
Total and Permanent Disability (TPD) insurance
This type of cover pays you a lump sum if you become totally and permanently disabled.
Life cover (also called life insurance)
While no one wants to think about such things, this type of cover pays a lump sum to an appointed beneficiary when you die or become terminally ill.
It's true that home-owners are often juggling a pretty tight budget but the extra cost of an insurance policy shouldn’t add too much more to the monthly budget. However the cost of not having cover in place could potentially be devastating.
If you're about to buy a home or have just bought one, seek some advice and don't let what happened to me, happen to you. - Eddie