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Do you need life insurance to buy a home?


Published August 2019

Buying a home is one of the biggest financial decisions you will ever make so it’s important to have cover in place to protect this purchase.

While lenders won’t demand you have life insurance to get a mortgage, it can be a crucial part of your financial planning and security for the future when taking on such a large debt.

It can be tricky to know how much – and what – insurance you require when you buy a property. You may not know what type you need or the difference between mortgage protection insurance, income protection and life insurance

A good starting point is to ask yourself a few questions: 

  • What if my partner/spouse died or was unable to work? 
  • What if I suddenly couldn’t work? 
  • What if our savings run out and we can’t pay the mortgage? 

These scenarios are important to think about because if you’re unable to cover mortgage repayments without a regular wage there’s a risk you could lose your home.   

The financial impact of death on families 

ANZ’s research report, The Impact of Death on Parents and Children, found 40 per cent of the families surveyed had no warning prior to the death of their parent/spouse, and 64 per cent had less than a week’s notice of their parent/spouse dyingdisclaimer. This highlights the importance of having insurance cover in place ahead of time should the worst happen.

The research also found families with life insurance were impacted less financially following a death. Before the death of the parent/spouse, 14 per cent of families without insurance rated themselves as ‘struggling’ when it came to finances. After the death occurred, the same group’s answer of ‘struggling’ jumped to 47 per cent. For those with insurance, 44 per cent rated their finances as ‘adequate’ and this figure rose to 56 per cent following the death of one parent/spousedisclaimer.

The research found that in hindsight, 75 per cent of those without life insurance agreed that a policy covering death would have helped their situation.

High levels of household debt a concern 

Australia has one of the highest personal debt levels in the world. According to the Reserve Bank of Australia, in the fourth quarter of 2018 household debt as a percentage of household income rose to a new high of almost 200 per cent with much of the debt being mortgages. That’s nearly double the amount of money that households owed per year compared to what they’re bringing in. This is a big gap to cover if earning capacity suddenly changes and households don’t have insurance in place to cover mortgage repayments.

In addition to high levels of personal debt, the Australian Bureau of Statistics says the national average home loan size is $384,700 and a weakening economy could present a danger to mortgage holders, especially if unemployment rises. So it makes sense to have protection in place for a number of reasons. But what is the most appropriate insurance to have? 

Life insurance, income protection and mortgage protection explained 

ANZ Mobile Home Loan Lending regional manager Simone Geronimi says many borrowers believe they already have the correct insurance through their super.

“Many people believe they automatically have income protection cover in their super but this is not necessarily the case. Often what they have is just life insurance,” she says. “They are not protecting their ability to earn an income. I don’t think there is enough public awareness out there about the different types of insurances and what they are or aren’t covered for in the event they could no longer work.”

Life insurance pays out a lump sum in the event of death or permanent disability, or in some cases if you are diagnosed with a terminal illness and have a limited life expectancy. But what if you are sick or injured and cannot work? How will you meet your mortgage repayments and other expenses? This is where income protection can help.  

Geronimi says income protection insurance is based on your income and aims to cover your costs of living if you are injured or ill and cannot work for a while. “You pay an ongoing premium and if you are unable to work due to a claimable event then you receive a monthly payment that you can use towards your living expenses, including your mortgage repayments.”

Another type of insurance is mortgage protection (or mortgage repayment insurance), which protects borrowers from the risk of defaulting on their home loan. Payments under this insurance are used exclusively for mortgage repayments – not for any other expenses –in the events such as death, injury, illness or involuntary unemployment.

What’s Lenders Mortgage Insurance?

Lenders Mortgage Insurance (LMI) protects your lender in the event that you default on your home loan and there is a ‘shortfall’. A shortfall happens when the proceeds from the sale of your home are not enough to cover the outstanding amount you owe to your lender. Understand more about LMI.

Find insurance to suit you 

While taking out life insurance isn’t a requirement to get a mortgage, it is worth considering especially if you’re unable to pay off your mortgage should you or your partner be unable to work.

Here’s a quick checklist to help you get started:

  • Ask yourself a few questions such as ‘What if I suddenly couldn’t work?’
  • Calculate how long you could pay your mortgage and expenses without an income
  • Review what cover you have within your super – is it enough to payout the mortgage should you die or become injured or disabled?
  • Understand more about life insurance by reading our most frequently asked questions
  • Find out what Income Protection covers and some benefits you may not have considered

Find out more about ANZ life insurance

Learn more about life insurance

Article

Is income protection worth it?
 

Can you cope without your income? You should consider protecting it. Learn more about why income protection insurance is important. 

  

Article

Income protection insurance FAQs
 

See the frequently asked questions about income protection including cover length, waiting periods, exclusions and costs.

  

Article

Five tips for getting the right insurance
 

Learn the basics of insurance. These five quick tips will help you find and choose an insurance policy for your home, car, income, and more.

  

This information is current as at date of publication and is subject to change.

The issuer of this information is ANZ. While ANZ has taken care to ensure that this information is from reliable sources, it cannot warrant its accuracy, completeness or suitability for your intended use. To the extent permitted by law, ANZ does not accept any responsibility or liability arising from your use of this information.

ANZ Life Insurance is issued by OnePath Life Limited (OnePath Life) (ABN 33 009 657 176, AFSL 238 341). We recommend that you read the ANZ Financial Services Guide (PDF 479kB)ANZ Life Insurance Product Disclosure Statement and Policy Document (PDF 145kB) (available online or by calling 13 16 14) before deciding whether to acquire, or to continue to hold, this product. This PDS relates to policies issued from 1 June 2019. Previous products (with the same name) may have different features and benefits. If you hold insurance based on an earlier PDS, please contact us if you have any questions or to have a PDS sent to you.

ANZ Income Protection covers two separate financial products – Income Cover is issued by OnePath Life Limited (OnePath Life) (ABN 33 009 657 176, AFSL 238 341) and Involuntary Unemployment and Family Care Cover are issued by OnePath General Insurance Pty Limited (ABN 56 072 892 365, AFSL 288 160) (OnePath General). We recommend that you read the ANZ Financial Services Guide (PDF 479kB) and ANZ Income Protection Product Disclosure Statement and Policy Document (PDF 272kB) (available online or by calling 13 16 14) before deciding whether to acquire, or to continue to hold, this product. This PDS relates to policies issued from 1 June 2019. Previous products (with the same name) may have different features and benefits. If you hold insurance based on an earlier PDS, please contact us if you have any questions or to have a PDS sent to you.

ANZ Mortgage Protection is issued by OnePath Life Limited (OnePath Life) (ABN 33 009 657 176, AFSL 238 341) for the Life Benefit, and QBE Insurance (Australia) Ltd (QBE) (ABN 78 003 191 035, AFSL 239 545) for the Disability Benefit and the Involuntary Unemployment Benefit. We recommend that you read the ANZ Financial Services Guide (PDF 479kB) and the ANZ Mortgage Protection Product Disclosure Statement and Policy Document (PDF 222kB) (available online or by calling 13 16 14) before deciding whether to acquire, or to continue to hold, this product.

Australia and New Zealand Banking Group Limited (ANZ) ABN 11 005 357 522 AFSL 234527 is an authorised deposit taking institution (Bank) under the Banking Act 1959 (Cth). The issuers of these products are not Banks. Although ANZ distributes these products, these products are not a deposit or other liability of ANZ or its related group companies. None of them stands behind or guarantees the issuers or the products. 

This information is of a general nature and has been prepared without taking account of your objectives, financial situation or needs. You should consider whether the information is appropriate for you having regard to your objectives, financial situation and needs. 

ANZ Wealth Report “Impact of Death on Parent and Children” 2015. Qualitative research conducted by Ipsos on behalf of ANZ in April and May 2015.

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