When household budgets come under pressure as they are now, consumers will often decide to stop paying for various types of insurance.
However, says Gerhard Kotzé, MD of the RealNet property group, one policy they should never cancel or allow to lapse is their bond insurance – the life policy that would cover the balance outstanding on their home loan if they were to die or become permanently disabled.
“This is not to be confused with the homeowners’ insurance (HOC), which would cover the cost of repairs to the property, or its replacement, in the event that it is damaged or destroyed due to a natural disaster. HOC is essentially insurance for the bricks-and-mortar, and lenders will usually insist that you have it as a condition of being granted a home loan.
“They will seldom insist, however, on a buyer having bond or mortgage protection insurance, although we always recommend it because it gives you peace of mind that your family will not end up homeless if something disastrous happens to you and they can then no longer afford the monthly bond repayments.”
Some mortgage protection policies, he says, will even insure the home buyer against temporary disability and/ or retrenchment by paying the bond instalments for a specific period, “and another advantage is that you can usually pay the premiums for mortgage insurance annually, which ensures that they will always be up to date, and reduces transactional fees”.
Kotzé notes that homebuyers who want bond insurance can either choose a credit life policy paired with their home loan or a normal life insurance policy for the amount of the original loan, with the former often being more affordable.
“If you decide on the latter, the amount you specified is what will be paid out to your heirs if you die or become disabled, providing your premiums are up to date, and this means that once the outstanding balance of the home loan has been settled, they will be free to use any money that might be left over to pay outstanding medical bills, for example, or for anything else they need to adjust to their new circumstances.”
On the other hand, he says, if you opt for credit life or decreasing-term life insurance, the coverage – and premiums – will decrease monthly along with the outstanding balance of your home loan, so that if you pay off the loan before you die or become disabled, the policy will just lapse and there will be no payout.
“And if the loan has not yet been paid off when you die, the payout from a credit life insurance policy will only be able to be used to settle the outstanding balance of the home loan. There will be no additional funds available to your heirs – although you will still be leaving them the great legacy of a fully paid-for home.”
