Did you feel a sense of relief when you finally sorted out all of the details and contracts for your loan? You took out home and contents insurance, you arranged for a cheque to cover the last few costs at settlement.
And you saw the paperwork for the Lenders Mortgage Insurance so you’re all covered in case you can’t repay your mortgage, right? Wrong!
Many borrowers make the tremendous mistake of assuming that Lenders Mortgage Insurance is their safety net in case of unexpected circumstances. This mistake could cost you the farm, and maybe even a few chickens.
LMI
Lenders Mortgage Insurance (LMI) is designed to protect your lender or your bank – not you. Unless you were able to fork over more than 20% of the purchase price, chances are your lender would have required you to talk out LMI.
LMI doesn’t provide any assistance to you if you become unable to repay your mortgage. It won’t kick in if you break your leg, or if you suddenly lose your job. LMI will not provide for your family in the event of your untimely death.
Lenders Mortgage Insurance is just that – insurance for your lender. This is designed to protect your lender in case you don’t make your repayments. If the lender is forced to sell your property in order to recover their money – they want to make sure that they won’t lose out if the selling price is not as much as what you paid. This is especially relevant if you only paid a small deposit.
Personal Insurance
There are an enormous variety of insurance products on the market that protect you from all sorts of misfortune.
Life Insurance will provide financial assistance to your family in the event that you suddenly pass away or become permanently disabled. There are many insurers out there so it’s worth comparing lots of different Life Insurance products to make sure you’re getting a good deal.
Income Protection Insurance is a safety net in case you become unable to work due to illness or injury, and sometimes because of involuntary redundancy. This can be very helpful for those who are self-employed – would you be able to keep up your loan repayments if you weren’t working for a few months?
Trauma or Crisis insurance is another option that you can investigate, which will help you out in a variety of sticky situations.
The important thing to understand is – you have plenty of options. There are lots of insurance products out there that protect you from the unexpected. But LMI is not one of them – unless you’re a lender.