Life insurance for first time home buyers.

Life insurance for first time home buyers.

For most New Zealanders, there comes a time when ‘how to enter the property market’ becomes an absolute obsession. Instead of reading social media feeds, recipe books and novels, Trademe Property becomes the entertainment of choice. It’s only natural, because the ‘quarter acre pavlova paradise’ (aka the NZ dream of house ownership) is burned into our national psyche.

The average age of a first home buyer in New Zealand is 34*. So buying a home often coincides with the serious business of settling down with a partner or spouse. Or having a child. These are all momentous life events. And that’s why the whole ‘first home/life partner/first child’ process often results in an appointment with a financial adviser.

Why consider life cover when you buy your first home?

There’s usually no requirement to get life cover when you buy a house. Just like there’s no requirement to get contents insurance for all the things that will furnish your home. You do it because you want to protect something you value. It just makes sense.

Life cover for first time home buyers could protect your ability to pay off the mortgage if something happens to you. If you die or become terminally ill with less than 12 months to live, a life cover claim could be used to pay all or some of the outstanding mortgage. Life cover makes sense if you share your mortgage with another person or if you have dependants, i.e. children or other family members who rely on you financially.

When you consider the size of your mortgage, for a smaller price life cover can help provide you with some protection if you were unable to pay it. For example: Anna, who’s in her mid-30s, is a non-smoker and in good health, has a $500,000 mortgage. She decided to take-out $500,000 worth of Life cover from Fidelity Life. Anna choses to make payments that will increase each year, this cover costs her initially around $30 a month and will rise each year.

This example can be helpful to understand what you may need to take out initially but it’s always a good habit to review your cover annually with your financial adviser. For example, over time as Anna’s mortgage reduces, she may decide to decrease the amount she is covered for. 

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What about mortgage protection instead of life cover?

Another option for protecting your financial wellbeing is mortgage protection. Fidelity Life offers Monthly mortgage repayment cover.

This type of life insurance can be used to pay your monthly mortgage commitments if you can’t work due to illness or injury. When you take it out, you’ll work with your financial adviser to identify the amount of monthly benefit that would be required to cover your mortgage and possibly some other regular expenses. You can also get this cover if you’re a tenant. It can be used to cover rent payments if you’re unable to work due to illness or injury.

Mortgage protection has wait periods, (periods of time that you must wait, after becoming disabled by injury or illness) before the cover will pay, your financial adviser will work with you to determine how long this should be.


Should you consider mortgage cover if you’re single?

Mortgage protection cover is designed to cover your home loan payments, rent or other expenses if you are unable to work due to sickness or injury. Even if you have flatmates contributing to monthly mortgage repayments, you may need an alternative income source if you can’t work for a while due to illness or injury.


What else does life insurance cover?

Some people go beyond the amount of their mortgage when choosing financial protection, so that other expenses are covered too. It depends on your needs. Fidelity Life’s Monthly mortgage repayment cover or Life cover can help provide some protection for your family’s financial future whatever that may be.

To work out how much cover you may need, there are a number of things to consider, including the size of your mortgage, number of dependants and other financial obligations you have.  For an accurate assessment of what you may need, talk to a financial adviser.


First home buyer scenario.

Lisa and George have been saving for a home deposit for five years. Finally, with a bit of help of KiwiSaver and a Kāinga Ora First Home Grant, they have enough to put 20% down on a house. And they’ve found the perfect place – a doer-upper that’s handy to both their workplaces.

When they’re arranging the home loan with their mortgage broker, Lisa asks about life insurance. The broker tells them that many first home buyers consider getting some kind of life insurance when they sign up for a mortgage. Lisa and George take this on board and decide to organise a meeting with a financial adviser to learn more about the cover they may need.

Their adviser talks them through the benefits of life cover and monthly mortgage repayment cover.  In the end, Lisa and George decide to get a bit of both. The life cover protects them against some of the financial risks of death and terminal illness; the mortgage cover provides reassurance that they’ll be able to afford repayments if one or the other can’t work for a while, due to medical reasons. 

For financial advice related to life insurance, including a needs analysis to identify the type of cover that could be right for you, we recommend you contact a financial adviser.


DISCLAIMER: The information contained in this article is a summary of the key points of the insurance cover(s) 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.


* - 'Going once, going twice, sold to first home buyers in NZ' 2017

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