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The Difference between Income Protection and Mortgage Protection

For many, protection insurance is considered all the same, however there is a vast difference between income protection and mortgage protection. It is important to understand these differences before taking out protection insurance.

Income protection insurance helps you protect your income in case of illness, accident or disability that has left you unable to work. Most income protection insurance policies will pay out approximately 60 to 70 percent of your income while you are out of work. These payments are to use towards expenses such as medical bills, loan repayments, grocery expenses as well as other miscellaneous expenses.

It is important that you protect yourself and your family so you can continue to cover utility bills possible medical bills and all other household expenses, though protecting your mortgage is just as important.

Mortgage protection insurance on the other hand secures your mortgage repayments if you are permanently or temporarily not working. These payments will cover the Equated Monthly Installment (EMI) of your mortgage.

Mortgage Protection Insurance will protect you against loan defaults and will ensure your mortgage is paid on time without fear of defaulting on your loan.  If you are unable to make your loan repayments you run the risk of losing your property.

Having the right insurance cover and understanding your policy will ensure you are properly protected incase of unforeseen circumstances.

Income Protection

When making a property investment, your top priority is likely to be how to afford the mortgage repayments. Whilst you will almost certainly have purchased home insurance to protect your investment, there are other possibilities you also need to consider to ensure you are protected in every eventuality.

For every one home lost through fire, there are four lost though death and forty-eight foreclosed and lost through disability.

Essentially Income Protection Insurance will secure you and your family a steady income and relieve financial strain should you unexpectedly be unable to work through illness, injury or death. Most policies provide the holder with 75 per cent of the average salary in this eventuality. Without this, it would be extremely difficult to provide for your family and continue with mortgage, household and medical bill payments.

The extra expense may seem a lot when purse strings are already tight in the aftermath of a new investment; however, tax deductible Income Protection Insurance could be the answer.

It is likely that you have insurance through your superannuation that offers cheap cover. However, be wary – insurance proceeds through super will be taxed, often leaving insufficient funds to cover payments that you, or those left behind in the event of a death, must make.

Whilst you are paying the premium, the cheaper option through super might be tempting. However, should the eventuality of you unexpectedly being unable to work occur, the outcome could be financially devastating if you do not have a cover with minimal tax implications.

Mandatory fact sheet to educate borrowers about LMI

A mandatory mortgage fact sheet for home buyers has recently been suggested to educate them about LMI.

LMI, a one-off premium that the home buyer pays, does not in fact protect borrowers. It covers the mortgage lender for any kind of shortfall between the value of the mortgage owed and the value of the home in case the borrower defaults.

It is often confused with mortgage protection insurance, which is an insurance policy that covers mortgage borrowers for the payment of installments on their mortgage should any unforeseen situations arise, such as unemployment, illness or death.

The fact sheet, which would be comprised of only one page, is intended to educate consumers about the costs and the benefits of LMI when they are taking out a home loan.

The intention is to allow consumers to compare quotes side-by-side, including the difference in premiums and rebate schedules, in order to help them find the right deal.

The Treasury was against the introduction of a scheme to allow LMI to be transferred between lenders, arguing that it would be too expensive and complicated to implement and administer, and would probably benefit less than 1 per cent of the borrowers.

Contact an eChoice Insurance consultant today, we can help you find the best insurance for you!

Best Fit Home Loans

With so many products out in the market, it’s now even easier to find the right flexible product to suit your needs. Home buyers can now use their home loan to help them achieve other lifestyle goals while they continue to pay off their mortgage.

Those looking to purchase a property should consider the following to help determine the level of flexibility you may need for your particular circumstances:

  • First Home Buyers – it’s a good idea for people in this market to look for a home loan with a low interest rate over a long term, unrestricted additional repayments and a redraw facility.

Being able to make additional repayments, combined with the flexibility of a redraw facility, allows you to build up funds in your mortgage account which may be used in the future for larger expenses, unexpected emergencies, or a rise in interest rates.

  • Home Buyers/Renovators – may select a home loan with a low introductory interest rate or ‘Honeymoon rate’, so if you want to renovate as soon as you move in, the low interest rate repayments can help you cover the cost of doing so.

Alternatively you could use this ‘honeymoon’ period to make additional repayments to build up your mortgage account to help cover any future renovation costs or a rise in interest rates.

  • Experienced home buyers – buying their second or third property.  An experienced home buyer might select a split loan option, so that they can fix the interest rate on part of the home loan and pay the variable interest rate on the remainder of the loan amount.

This can allow you to protect a portion of your mortgage against future interest rate rises while still allowing you to make additional repayments to help reduce your mortgage account.

  • Property investors – may focus on rental income, tax savings and set monthly repayments.  A basic home loan which will provide a low interest rate over a fixed interest period – allowing for set repayments which will not fluctuate with interest rate changes – may suit the property investor.

The variety of home loans is increasing all the time, providing home buyers with a wide selection of choices. So it is important that you decide on the loan and interest rate options which will best suit your lifestyle.

Life Insurance – How Much Do I Need?

Life Insurance – How Much Do I Need?

In estimating the amount of life insurance that you’ll need, you need to think about a needs approach or the replacement income approach. Under the needs approach, the life insurance will be calculated according to the financial needs that your family will need when you die. On the other hand, the replacement income approach is calculated on the income that your family will lose.

With the needs approach, you must find the sum of all the amounts that will represent the needs of your family after your death. These needs include funeral and burial expenses, uninsured medical bills and estate taxes.

This approach also includes the tuition of your children, personal or business debts and expenses on food and housing over time. Yet since the job of identify the needs of the family is difficult, it can also be limit you.  Also, the true needs of your family and the privileges that you want for them are hard to differentiate.

For the replacement-income approach, the amount of insurance is based on the amount of earnings that would cover your family’s needs years after your death. Approximately, the replacement income is four or five times greater than the annual income although there are more precise estimation considerations In accordance with your family’s annual needs.

This estimate considers the number of years that your family is going to need the benefit payment and the interest rate that the family will earn from the proceeds. You must also consider that Social Security provides benefit payments as well so you need not get a big benefit payment from the life insurance.

Calculating the benefit payment using the replacement-income approach is easy. If you have a job that earns you $50,000 a year and you want that amount to be covered for 15 years while your family earns five percent out of the life insurance benefit payment, you would need about $20,000 of life insurance for 15 years so replace the $50,000-a-year income.

You can also include inflation in the calculation for the replacement-income approach. Take for example the situation presented above but figure in an inflation of 2%, it would give you $518982.90 or about $600,000 which makes it $750,000 given the inflation.

Do You Have the Home and Contents Cover You Need?

Do You Have the Home and Contents Cover You Need?

It’s easy to underestimate the value of the items in your home, and not get the right cover under your home and contents insurance.   You need to think about what would happen if you need to replace the items in your home because of theft or damage and make you are not left short when making a claim.

To get a good estimate of what cover you need you must go through every room or area in your house and take note of every item that has value. These items include furniture, jewelry, clothing, accessories, shoes, electronic gadgets, pushchairs, bikes, books, audio CDs, DVDs, kitchen equipment, porcelain items, appliances, computers, MP3 players, gaming consoles, ornaments, paintings and antiques.

Jot down the brand and model of each item as well as their serial numbers and the year of purchase. For ornaments, painting, antiques and furniture, you must describe their physical appearance. You would be better off if you have kept the receipts or any proof of purchase for the items.

You must also think about the value of the items according to current prices.  This would be the amount that you need to replace the particular item. It would also help if you will take pictures or a video of the room’s or area’s contents and store it from harm’s way.

There are items that are often overlooked. These items include musical instruments, camping items, flooring, rugs, carpets, bed linen, towel, table cloths, sports and exercise equipment, luggage, vacuum cleaners, clocks, mirrors and liquor.

Items with high value such as antiques and diamond jewelry must have a separate insurance cover. Any item that is worth higher than $1,000 must carry its own insurance policy. If you are not sure about the value of these expensive items, you can have them valued first. After a number of years, the item must be re-valued to keep it up to date.

In making sure that you have the right cover, you must not overlook collections such as CDs or knives. These items are still hard to replace and they must be insured. Also, you must inform your insurer about the new items that you have purchased or if there are items that you have sold. You must never overestimate for it can bring expensive premiums.

Garden items, sheds, plants and the greenhouse must be insured too. Even the patio grills, garden tools, outdoor benches and garden decorations must be included in the home and contents cover.

Total Permanent Disability Insurance Tips

Total Permanent Disability Insurance Tips

Total Permanent Disability or TPD Insurance covers you should you become permanently disabled. Essentially if you you are unfit to work again.  It is a lump sum payment that can be used for rehabilitation costs, debt repayments or for other personal and family expenses. The payment is usually made six months after the insured individual is deemed unfit for work.

In general, a permanent disability is an ailment that a person cannot recover from. You will have this disability for the rest of your life. However, insurance companies have varying definitions of a permanent disability. There are common definitions which are the loss of two arms, legs or eyes and absence from work for six months because of an illness or accident and without word of returning to work.

TPD insurance can be taken as a an extension to term life insurance or as a separate policy.  It can also be taken as an extra feature from your super fund.  Check out first if you have this cover and how much of this cover do you have through a super member statement.

You must make sure that your TPD insurance will cover injuries caused by accidents and sickness, get cover against most disability scenarios. You must also apply for an insurance cover for your line of work. There is a difference between the coverage for your own occupation and any other occupation.