I am very fearful of being made involuntary redundant. As a result I would like to take out loan repayment insurance on my existing mortgage, which is $400,000. I looked at one bank and the premiums were around $170 per month, which seems to be very expensive. Does anyone no a good cheap insurance company that would cover this? I also note that a few credit unions I looked at, said you needed to take it out at the start of the loan, would this be the same for all loan repayment insurance products?
Loan repayment insurance
Ltemporiser on 22/03/2014 - 09:17
Comments
StGeroge and Vero and owned by two different groups ;)
last i checked ~ 6-7 years ago when we had our home load we were told it was inhouse…
How about you look at income protection? Pays about 75% of your normal income to help get you through, have seen it advertised everywhere.
Income protection pays out in the event of sickness or injury. Not redundancy. Otherwise people would take it out and deliberately be awful at their job to get fired.
IP doesn't usually cover redundancy or unemployment. It is for accidents, illness etc that prevent you from working.
Certain IP policies do cover involuntary unemployment. From memory CBA and Onepath provided that your mortgage is with CBA or ANZ respectively. Talk to a financial planner for full details. I have a bloke in my office that has looked into it for one of my clients in the past if you need an introduction to one.
What idiot negged 2jzzzz's comment? He is absolutely right, as per ShannonIngram's comment. A quick Google search for income protection insurance redundancy cover shows NRMA Insurance, Virgin Money and others offering this feature. The details below are from http://www.smartincomeprotection.com.au/what-is-redundancy-p… :
"WHAT IS REDUNDANCY PROTECTION FOR?
Redundancy protection is a policy feature included with some income protection cover. With standard income protection cover, the insured individual is covered for events like injury and illness, with the redundancy insurance feature, the insured may be excused from paying their premiums for a set amount of time while they are involuntarily unemployed. Redundancy protection does not mean that the insured will receive any benefits payments in the event of unemployment."As it relates to income protection insurance in Australia, redundancy protection would be a policy option that can be added to some income protection plans. Not all insurance providers offer redundancy protection and in the current market there are no plans that offer benefits payments in the event of redundancy. The reason that redundancy insurance is available for some income protection policies is because the insured would be ineligible to collect their benefits is they were to become injured while already redundant. If you are interested in redundancy insurance, it is important to inquire about what type of redundancy options a particular insurer has and how the additional coverage works.
"Even with some level of redundancy insurance added to an income protection policy, it is important to realize that the insurance will not cover the individual to the same degree for involuntary unemployment as it will for injury and illness. How the policy accounts for redundancy will vary depending on the insurance provider and the particular policy.
"In most cases the redundancy protection will only cover a premium waiver for a few months and there are some exceptions regarding events that will qualify for the redundancy waiver. For redundancy, the policy will typically only provide a waiver for up to three months by which time the insured will be expected to resume their payments.
"Even though redundancy protection does not provide any benefits in the event of unemployment, it is still an important policy feature to consider. If you find that you are temporarily unemployed, not having to pay the premium on your income protection insurance can provide some much needed financial relief.
"When you are shopping for income protection insurance in Australia, it recommended that you try to find a policy with at least some level of redundancy protection. It may not provide financial support, but they can at least relieve some of the financial burdens that will accompany temporary unemployment. As you compare your income protection quotes, read the product disclosure and determine if there is any provision for redundancy protection."
I didn't neg him, but what you are referring to is redundancy protection, different product…
"With standard income protection cover, the insured individual is covered for events like injury and illness, with the redundancy insurance feature, the insured may be excused from paying their premiums for a set amount of time while they are involuntarily unemployed."
I understand what you are saying, but income protection insurance which pays benefits for involuntary unemployment IS available. For example, with Virgin Money income protection: Unemployment Cover pays a monthly benefit for up to 3 months to help you while you're looking for work if you've been made redundant or, if self-employed, your business is declared insolvent. The maximum cover is $3,000 per month.
How does it work?
After your policy has been in force for 6 months you are covered if you are made redundant and are out of work for longer than 28 days. You need to have been continuously employed for the 6 months prior to your unemployment and if you are self-employed the benefit covers business insolvency that has not been apparent in the 6 months before policy commencement.There is some perhaps useful discussion of this feature here: http://wealthpartners.net.au/2013/04/02/income-insurance-for…
Duplicate comment..
Insurance for income protection in case of voluntary redundancy is going to be expensive…it preys on the fear of losing your job directly impacting your ability to service your mortgage.
Let's just address the first issue…if you lose your job, chances are you will find another one. You obviously want to be proactive about this - and this is how I've set myself up having been made redundant a couple of times in the past at most inopportune times. I'm not a financial adviser, and I find most financial advisers are FOS and just want to sell you stuff to pad their commissions by feeding on your fears anyway.
Being made redundant usually comes with a parachute, they pay out your leave (not sick leave these days unfortunately…or I'd be able to retire!), provide reasonable notice period etc and there's a cap on how much it can be taxed - you generally find yourself with a decent amount of cash…I've usually found the payout to be about 2-3 months worth of pay…if you've been there a while…it could be a lot more.
Protect yourself…you have a mortgage now…do you have existing redraw on it? Can you top it up to provide extra available credit? I like to have at least 10% of my total mortgage value in available redraw on my loan, this gives me the ability to live with no income for 6 months. Go speak with your bank and increase your mortgage to provide extra available funds BUT NEVER TOUCH THEM!! The extra facility will not cost you an extra cent in interest as you only pay interest on what you owe…if it's still sitting in the account, you don't pay interest on it. Why pay $170 a month up front when this option will only cost you if you start dipping into it. At current rates…if you had $50,000 available credit - this would only cost you $2500 a year (or $200 a month) in interest once you fully used it and it would probably last the average Aussie a year and you're not taking out the full amount on Day 1, you'll be using your parachute first and then drip feeding a credit card. This is called using your house equity to protect yourself.
The Virgin Money insurance cap of $3000 a month clearly targets lower income earners…that $3000 probably has to have tax taken out of it…and I'd be sure to check that the premiums were tax deductible in the first place. I don't think $3000 is much money at all (I earn that per week…maybe more). But it will take the sting out remembering that a lot of expenses of travelling to work suddenly disappear, luxury spending gets cut, give up smoking, cut back on drinking, take kids out of private school…etc etc…unless you know you are unemployable (how did you get the job in the first place?), live in a remote area with limited job options (move?) you should find a new job in a reasonable time frame.
You see the writing on the wall? Get out in the market now…get a feel for it…be ready to attend interviews, get feedback on your prospects. Change is scary, it can also be exciting. It's better to be a master of your destiny that a victim of it.
Made redundant? Speak to your lender immediately. Change your loan from Principle & Interest to Interest Only, this will free up a lot of extra money and take a lot of pressure off. The less stressed you are, the better you will go finding a new job. Make sure all credit cards are paid off in full and that they are not attracting any interest (look for the total interest figure at the bottom of your statement…if it doesn't say $0.00…cut up the card and get a new one…one with 0% interest on balance transfers for an initial period). Lenders also have hardship provisions - maintaining good communications with them is key…they are there to help and will work to keep you in your house. House repossession and legal action are used as a last resort and usually because the borrower has not communicated well with the lender.
In the end, you want to set yourself up so that if job loss does occur, that the stress of finding new work is not exacerbated by lack of money which makes you more desperate in your search.
Worst case scenario…could you sell your house and downscale to a more affordable home?
My thoughts are that if you feel you are on shaky ground…don't shore it up with insurance.
As I said before, I'm not a financial adviser and not qualified to provide advice on any specific basis, but I do work in a the mortgage industry and this is the way I have set myself up so money is not an issue should other sh*t happen.Lots of excellent, relevant and clearly expressed suggestions here - I wish I had more than 1 vote to give you.
The good ol' anti-selection; take out insurance only when you fear a loss event is likely to occur based on changed personal circumstances
Make sure you read the PDS with a fine-tooth comb. IP has many clauses around benefit limit, waiting period etc. Caveat emptor
do you happen to work for Qantas by any chance :-)
hello, yes they are usually through the bank you are with like stgeorge being vero (inhouse self insurance).. they usually have some strict terms but if something does happen you are covered for 2 years with increased premiums paid on loan insurance…