Property ownership. Protecting the Great Aussie Dream

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01 January 2019

Couple packing

Homeownership. It’s the great Australian dream, a desire ingrained in us by the generations that have gone before, and one that will undoubtedly be passed onto our future generations, too.

Owning your own place, for most, is a dream come true. A place to call home, where you’re not at the mercy of a landlord’s whim. A place you can decorate how you like, renovate to your heart’s (or bank balance’s) content and create memories as you go.

Unless you’re incredibly fortunate, buying your own home will incur a considerable debt – probably one of the biggest debts of your life.

And, unless it’s managed correctly, that debt has the potential to turn the Great Aussie Dream into the Great Aussie Nightmare.

Understanding your debt

In 2018, the average first-home buyer loan was $345,8001. Compare it to an average annual salary of almost $86,0002  and the scale of that debt becomes clear.

Of course, it’s a productive debt so you should earn capital gains over time, and when repaid over 20, 25 or 30 years is less daunting and manageable.

However, your ability to keep your home – and keep your dream alive – depends entirely on your ability to keep up with your mortgage payments.

And that is not always as straightforward as it may seem.

What does your ability to repay depend on?

A serious injury or illness that prevents you working may immediately compromise that ability, while death would, obviously, make it all the more difficult for your partner to keep up the repayments.

It’s a scenario that isn’t beyond the realms of possibility, yet only 22% of Australians have personal life insurance3, while only 12% take out income protection4.

Unsurprisingly, purchasing life insurance is often triggered by major life events - with buying a home only second behind having children5 as the main trigger why people buy life insurance.

Life Insurance and associated income protection insurance, total permanent disability (TPD) insurance and critical illness cover may be able to cover the costs of your mortgage in full, should the worst happen.

When you have dependants too, the need to ensure they’re protected and not in a position where they may lose their home, becomes even more imperative.

Think you’re OK with life insurance in super?

Many people in Australia have life insurance wrapped in with their super – in fact, according to research, 70% of all life insurance policies are held within superannuation funds6. However, research has also shown that the median level of life cover held meets only 37% of the needs of Australian families with children7, meaning you and your family might encounter serious financial difficulties should you not be able to work – or if you were no longer around.

So talk to your adviser now to ensure your levels of cover are appropriate for your situation. It could prevent your dream turning into the ultimate nightmare. Making sure you have the right cover in place can help you enjoy the dream – with one less thing to worry about.

References

  1. https://www.finder.com.au/australian-home-loan-statistics
  2. http://www.abs.gov.au/ausstats/abs@.nsf/0/7F76D15354BB25D5CA2575BC001D5866?Opendocument
  3. Pure Profile Insurance Report 2017
  4. Pure Profile Insurance Report 2017
  5. https://www2.deloitte.com/content/dam/Deloitte/us/Documents/strategy/us-cons-life-insurance-consumer-study.pdf
  6. https://www.superannuation.asn.au/ArticleDocuments/359/1709_Insurance_through_superannuation.pdf.aspx?Embed=Y
  7. https://www.ricewarner.com/australias-relentless-underinsurance-gap/

 

These pages contain general information only and do not take into account your personal circumstances, objectives or needs. This information is provided in good faith and believed to be accurate at the time it was placed on the MLC Life Insurance website, however we make no representation or warranty as to the reliability, accuracy or completeness of this information.

The information provided is not intended to constitute financial, legal or medical advice, or to substitute for the need to consult with your advisers or treating practitioners. Before acting on any information in these pages, you should consider whether it is right for you and consult with your financial, legal and/or medical advisers.

Any views or opinions expressed or referenced here (including in any video content) or in any webpages to which hyperlinks are provided do not represent the opinion of MLC Limited, unless we say otherwise.

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