Got a bond? Why life cover is a must-have

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"I have seen the downside. I have seen the families who have not been covered or adequately protected and I have seen the tears. In the event of the death of the [bondgiver − the person paying the bond; the bank is the bondholder], life cover can make a very traumatic situation that much more bearable. Lack of it can make a distressing situation even more of a tragedy.”

So says Donovan Adams, a certified financial planner with Chartered Wealth Solutions, speaking on the plight of families who have lost the family member responsible for paying the home loan.

Losing a family member is tragic enough without the added complication and trauma of financial hardship on those left behind.

Reason enough for home loan applicants to think long and hard about life cover or mortgage protection cover to provide dependants with a roof over their head in the event of a life-changing event such as death.

About life cover
Life cover or life insurance is a means of ensuring that money is available to settle all outstanding debts and provide dependants with financial security in the event of the death or disability of the person whose life is insured.

Importantly, the cash sum paid out can be used to settle debt like the home loan that could then allow dependants to keep their home. Mortgage protection insurance, another type of life cover, is limited to provision of cover for the home loan only.

Sadly, in the event of death, disability or loss of income, the dependants of those breadwinners with no life cover or mortgage protection face the very real possibility of losing their home.

Yet, taking out life cover or mortgage protection to cover a home loan is not always mandatory and some homeowners, loath to incur any additional monthly costs, opt to forego this option. 

Gambling on the odds that a life-changing incident would not impact them or their families, the uptake of life insurance products among South African consumers only amounted to 15% in 2013, according to a survey conducted by FinScope.

Males made up the majority of those with life cover at 19%, compared with females at 12%. The report also reveals that at least 55% of life cover policyholders fall into the more affluent LSM 9-10 (living standards measure) group.

South Africa is not alone in its woeful mortgage protection statistics. A 2014 report by The Association of British Insurers reveals that of the 26.4m households in the UK in 2012, only 3.1m had mortgage protection. 

These low figures point to a possible lack of understanding among bondgivers about the value of life cover.

The long and short of it, says Adams, is that there should be life cover in place for homeowners who have a bond because it protects the family of the bondgiver.

Knowing that, many bondgivers may rethink their position on life cover.

This is an excerpt from an article that originally appeared in the 2 July 2015 edition of finweek. Buy and download the magazine here.

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