When I get asked a few of the same questions over and over again, I prefer to write a blog post on the subject.
This week I kept getting the following relevant insurance question.
“I’ve just bought a property, what insurance am I required to take out? What insurance can my bank force me into taking out?“
The short answer is that it depends on your bank!
The reason why I say it depends on your bank is because I used to work for a bank, and back then, home owners insurance (or ‘buildings’ cover) was non-negotiable in order to secure a home loan. And I’m not talking that far back – 7 years ago in fact.
Nowadays, while having building cover (or home owner’s insurance), is still a requirement, life insurance doesn’t seem to be. I guess the banks now base it on an individual risk basis. The older you are when applying for a loan, the greater the possibility that they’ll require life insurance!
Life Insurance Policy – It Might Or Might Not Be A Requirement
Even if your bank doesn’t require you to have life insurance in place, it’s still a good idea.
The bottom line is, if you pass away without having any life cover – and with a large mortgage still in place – your better half isn’t going to be too happy, to say the least.
Why take that chance?
Why not take out just enough life cover to settle your bond in full? If you truly care about your family then it’s the right thing to do!
The good news is that if the bank insists on you taking out life insurance in order to secure your beautiful home, then you don’t need to take out your life insurance (or building insurance for that matter!) with the bank. Yip, that’s all changed now that the consumer (that’s you) has been given some flexibility and freedom of choice (It’s called ‘conditional selling’ and its regarded as a no-no!).
Have a look at what the banks insurance agent offers you and then ask an independent broker to organise comparative life insurance quotations.
Building Cover Policy – Certainly Will Be A Requirement
Ok, so while a life insurance policy might not be a requirement to secure your home loan, taking out building cover (also referred to as a homeowner’s insurance policy) will be a requirement.
While the bank is loaning you the money to buy the property (and remember that until you re-pay the loan, the property belongs to them) they want to make sure that their ‘investment’ is secure. If it falls over, they want to make sure it can be rebuilt again. So you need to insure the building for current replacement value and pay your premiums each and every month.
We’re talking about insuring the actual bricks and mortar, the front gate motor, the geyser, the tennis court, the swimming pool, the boundary walls, the whole enchilada!
The good news is that this can be covered under your existing short term insurance policy (car and home).
So here is the definition of Building Cover from Momentum’s Personal Lines Policy Wording:
Buildings refer to the immovable structures, this includes the home and the outbuildings whether they are separate from the home or not, at the address noted on your schedule. It also includes all permanent fixtures, fittings and improvements, such as driveways, walls, patios, swimming pools, swimming pool – borehole – and spa pumps, gate motors, tennis courts, underground pipes and cables.
Again, while the building cover policy will be compulsory to secure your home loan, you don’t need to take it out with your bank. Shop around and find a few comparative quotes before you commit.
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Until next time.
The InsuranceFundi Team