Do you need life cover for a bond?
Applying for a home loan is an exciting time in any person's life. Preoccupied with your new beginnings, the last thing that comes to mind is what will happen in the event of your untimely death. But, while you might not be thinking about it, the financial institution with whom you're dealing certainly will be.
"Life cover is the assurance most financial institutions require in order to grant you a home loan. As unpleasant as it might sound, the institutions need to be sure that the loan amount will be repaid even in the unfortunate event of your death during your lending term," explains Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa.
Though the last thing anyone wants to hear when applying for a bond is that you will need to add yet another expense to your already lengthy list of monthly debit orders, life cover is an important expense that allows individuals the ability to take out credit. For those who are the primary income providers in their household, it also ensures that your loved ones will be provided for in the eventuality that you are no longer around to support them.
"Each bank will have their own lending requirements when it comes to life insurance policies, so buyers will need to do their homework carefully before deciding which policy to sign up for. To save themselves some trouble, I would suggest that buyers work through a bond originator such as Betterbond who can advise them about the various prerequisites involved when applying for a home loan," says Goslett.
Summarising the various requirements, Betterbond reports that life cover is required by the various banks according to the following criteria: For ABSA clients, choice is somewhat limited as their "Home Loan Protector Plan" is compulsory at the creditor's discretion.
They can, however, choose to forgo the Permanent Disability cover option. FNB clients have a little more freedom in this regard, as life cover is compulsory but customers may have their own cover, provided it meets the terms and conditions of the bank. For Nedbank clients, however, life cover is only compulsory on all loans of up to
R600 000. Standard Bank also offers a little more leniency to their clients, insisting on life cover only on home loans with an access facility, but not on those without.
"It might not be something buyers want to consider, but life cover is one of those unavoidable expenses that most adults will need to take out at some point in life. The last thing you want is to lose out on your dream home simply because you didn't do your homework before applying for a home loan and subsequently cannot qualify for the bond amount," Goslett concludes.