If you’re renting, have recently bought a home, or are in the process of finding a property to buy, you might be wondering if it’s a good idea to get mortgage protection insurance. In this article we look at what you get with mortgage protection insurance and why arranging cover could be a smart decision.
Do I need mortgage protection insurance?
What is mortgage protection insurance?
Mortgage protection insurance, is a type of life insurance that’s designed to protect your ability to meet your monthly rent or mortgage payments if you can’t work for an ongoing period, due to sickness or injury.
Why get mortgage protection insurance?
The decision to get mortgage protection insurance can rest on your ability to keep rent or mortgage repayments ticking along if your income stops for a while. A survey by the Financial Services Council (FSC) of New Zealand in 2022 found that most employed New Zealanders have less than 6-months worth of expenses saved. The same FSC research showed that 40% of New Zealanders would be unable to access $5,000 (without going into debt), if something unexpected were to happen to them.
If sickness or injury happened to you, how would you meet your monthly rent or mortgage payments?
SOURCE: https://blog.fsc.org.nz/2022-research-financial-resilience-index
How much mortgage protection insurance should you get?
Your financial adviser will help you work out the right amount for you. To give you a guide of what’s available, insurers offer varying levels of cover based on a percentage of your gross income, rent or mortgage payments each month. For example if you have a mortgage, Fidelity Life offers Monthly mortgage repayment cover with a benefit limit of up to 40% of your gross income or 110% of your usual mortgage repayments each month, up to a maximum of $30,000. If you rent (and don’t have a mortgage), Fidelity Life Monthly mortgage repayment cover has a benefit limit of up to 40% of your gross income, up to a maximum of $5,000 per month.
You can select which options at the start of your cover. A financial adviser can help build a plan that’s right for you.
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With Fidelity Life monthly mortgage repayment cover you also get these benefits:
Rehabilitation and retraining.
If you undertake an approved rehabilitation programme, for the purpose of retraining or re-education to help you return to work, you may receive additional financial support on top of the regular monthly payment.
Earlier payment for recurring claims.
If you suffered a recurrence of the same or related sickness or injury within 12-months of returning to work, the waiting period will be waived meaning you will receive payment earlier.
Increase your monthly cover without additional medical information.
If you take out a new mortgage or increase your existing mortgage, you may be able to raise the amount you are covered for, by up to 10%.
What can you use mortgage protection insurance for?
Payments from a claim can be used in any way you like. So in addition to helping pay your rent or mortgage, payments could help with utility and household bills.
When do mortgage protection payments start?
With Fidelity Life, you can choose when payments will start after your claim has been accepted. This means deciding how long you want to wait before receiving payment. Options include 2, 4, 8, 13, 26, 52 or 104 weeks. You can also select how long you want payments to continue. The choices are 2-years, 5-years or to age 65. An adviser will help you work out what’s right for you.
What if my mortgage repayments increase?
If you’re concerned about rising interest rates that could increase your mortgage repayments, ask your financial adviser about Fidelity Life’s CPI option. It lets you increase your cover by at least 2% each year without providing any medical information. This helps to keep the amount of your cover up with cost of living.
It’s worth noting that choosing the CPI option will increase the price you pay.
Do you need life insurance for a mortgage in NZ?
There’s not always a requirement to get life insurance when you take out a home loan. However while life insurance is not a must-have, many property buyers can choose to take out mortgage protection insurance at the same time as starting a home loan. Why? Because it can provide peace of mind – getting mortgage insurance to protect their ability to repay a home loan can be just as important as getting house insurance to protect the home from fire and natural disasters.
For help with monthly mortgage protection, talk to an expert
Making decisions about mortgage protection insurance is easier when you get help from a financial adviser. You can ask questions, consider various options and there’s no obligation to buy.
DISCLAIMER: The information contained in this article is a summary of the key points of the insurance cover mentioned and is general in nature. This article does not constitute a financial advice service. All covers are subject to the definitions, standard exclusions/limitations, terms and conditions contained in the full policy documentation which is available from Fidelity Life or your financial adviser who holds a Distribution Agreement with Fidelity Life. All applications for cover are subject to underwriting criteria.
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