This cover can come with a number of optional add on benefits which I touched on in another article. In this article I a want to help you understand some of the differences and in what situations you should consider adding optional benefits on your mortgage insurance.
The basic cover normally consists of two core benefits, and the simple explanations are as follows;
In the event of your death the insured amount is paid to the lender to repay the full balance of the mortgage (assuming that your cover is the same or greater than than your mortgage). If there is any balance left, then the difference is normally paid to your estate.
In the event that you are unable to work due to sickness or accident, then the insurer will pay your monthly payment to your bank or lender. This is normally paid until you can return to work.
Your current policy may include some of the above, but may or may include the following benefits.
Total and Permanent Disablement (TPD):
This is a lump sum payment which is paid to your lender if your are defined as being TPD under your current mortgage insurance policy wording. The important thing to understand is that it can take up to 6 months to get this payment because most of the insurers definitions require you to be totally disabled for a continuous period of 6 months and not likely to go back to work.
This is a great addon and should be considered if your budget permits.
This is a lump sum payment which will pay for your mortgage in the event that your are diagnosed with a serious illness. Your insurer will outline all the conditions and definitions of these conditions in your policy wording. For me, I cannot recommend this type of cover enough and it is one of the best add ons you could have on your mortgage insurance.
Mortgage Insurance Advice
In my experience, the optional benefits should be added to your cover if your budget permits. Trauma cover claims are becoming more and more common and really shows its value if you were to be diagnosed with a condition such as a heart attack.
I have a client with a recent case and the time of writing this article, my client had a heart attack. The tricky part is that he is still able to work and can return to light duties. In this case, he does not qualify for his monthly mortgage repayment to be paid by the insurer because he did not meet the definition of being unable to work.
The smart thing is, that he has Trauma cover and will be paid approximately $56,000 because he did have a heart attack. So the right amount of Trauma cover is not going to repay his mortgage in full, but $56,000 goes a long way. He can return to work in a reduced capacity without the financial stress.
My advice is that we should have all our bases cover with as broad cover as we can get, but understanding that it must be affordable otherwise you won’t keep it long.
In closing, it is critical that you understand what you are covered for and what you are not covered for. If you need advice, please contact me and I would be happy to talk with you and what cover would be suitable and affordable for you.