When applying for a home loan, clients are often not aware of the costs associated with insurance and assurance.
As a homeowner, you need two types of insurance to protect yourself against the unforeseen. 1. Homeowners insurance: covers the structure of your property 2. Household insurance: covers the contents.
1. Home Owners Insurance
Home Owners Insurance is a mandatory requirement by the banks and is debited against your home loan. The banks must ensure that the property that is mortgaged to them is adequately covered for fire, water damage and any other unexpected event that causes damage or destruction to the property. This is a very important product as the bank must be able to recover the loan should such an event occur. In some cases, the banks do allow clients to shop around for their own insurance, but this is not the norm. If you do organise your own insurance, the banks will need proof from the insurance company of this security and that the bank's interest is noted in the policy.
2. Freehold insurance
If the home is freehold, the bank will use their preferred insurance company, which normally offers market-related premiums. The costs are usually debited against the home loan account annually and the premiums are divided by twelve, so the charges are included in the bond repayments. This is reviewed periodically to ensure that adequate cover is in place.
Homeowners should be aware that if they have done renovations or added new and expensive finishes to their home, that they should immediately notify their bank of the improvements. An assessor will then visit the property to reassess its value and amend the cover.
Often people ask why the insurance value is different to the market value. This is because the land price is not included in the cover, so only the brick and mortar replacement value are accounted for. Home Owners Insurance does not cover personal possessions like furniture, laptops, etc. and separate household insurance must be taken out by the owner.
3. Sectional Title Insurance
The same rule applies to sectional title property except that the body corporate is responsible for collecting the premiums via the monthly levy each owner pays. They normally have a 'blanket' cover including each unit, and individual owners should also check that the cover is adequate to replace the property in the event of any disaster. If a bond is in place, the body corporate is required to give the bank details of the insurance policy and the amount the property is insured for, as well as make sure that the insurance company notes the bank's interest in the policy.
Assurance - Mortgage Protection
This type of insurance is cover in the event of death, disability and dread disease. It is not mandatory, but it is always sensible to take out, especially for young first-time buyers who are generally healthy and so their premiums should be reasonable and affordable. It never expires and can be used again without renewing it in the event of cancelling the bond and buying another property i.e. it is transferable.
This cover is commonly known as Mortgage Protection, which ensures that in the event of death or any other unfortunate event, that the family has peace of mind that their house is not compromised. It is bad enough having to cope with death or disability, but you don't want to have to worry about finances.
Often the bank consultant will call a new client that has taken out a bond and offer their services to source mortgage protection. The policy premium can be debited against the home loan, which is convenient, and in the event of any claim, the policy will be with the bank and they will handle any claim or query you have.
Life insurance is very important to have whenever a big debt has been incurred. It may not be mandatory, but it is prudent to make sure that you are covered for every eventuality.
