Why you need life cover if you have a bond

When applying for a home loan, one vital aspect to carefully consider is life cover or mortgage protection cover. This will ensure that you can continue to provide your dependants with a roof over their head if you pass away, or become disabled and cannot work.

If you are the main income earner, but don’t have appropriate life cover or mortgage insurance, you could leave your family in a world of financial hardship after your death, or create complications that could have been easily avoided. As any financial planner will agree, this area of a financial portfolio is one of the first building blocks to be put into place.

Life Insurance 101

A bondgiver is the person paying the bond, while the bank is known as the bondholder. In the event of the death of the bondgiver, a lack of life cover can make a very distressing situation all the more tragic. Families who have lost a member, who is responsible for paying the home loan, can face the very real possibility of losing their home.

According to an article published on Fin24, “life cover or life insurance is a means of ensuring that money is available to settle all outstanding debts and provide dependants with financial security in the event of the death or disability of the person whose life is insured. The cash sum paid out can be used to settle debt like the home loan that could then allow dependents to keep their home. Mortgage protection insurance, another type of life cover, is limited to provision of cover for the home loan only.”

South Africa

In spite of its arguable importance, taking out life cover or mortgage protection to cover a home loan is not always compulsory and, in our stressed economy in which more than half of credit active customers are considered to be credit impaired, many South African homeowners opt to forego this option in order to avoid additional monthly costs.

Many people choose to take a gamble and pray that they won’t be the victim of a life-changing incident, and that it won’t have a negative impact on their situation or their families if they are. According to a survey conducted by FinScope, this risk-taking tendency led to only 15% of South African consumers buying life insurance products in 2013. Although the Timetric report shows that the life insurance sector grew at a compound annual growth rate of 12.1% from 2012 to 2016, the lower economic growth that was expected until 2019 has meant that the life insurance sector hasn’t expanded as quickly as need be. Ironically, many South African adults are believed to have funeral cover, but few of these have life cover, and even fewer have disability insurance.

South Africa is not alone in its pitiful mortgage protection statistics, but the low figures do point to a possible lack of understanding among bondgivers about the essential nature of life cover. The crux of the matter is that, if you are a homeowner with a bond, it is important to have life cover in place so that your family will be protected in the sad event of your passing. A small monthly installment can save your family from massive financial pressure in the future, while not paying now can end up costing them dearly.

Don’t leave these things to chance — be proactive and ensure you have taken the necessary steps now to protect those you love after you’re gone. Don’t hesitate to arrange a meeting to discuss how you can secure your family’s financial well-being.

Posted in Blog, financial-planning.