Homeownership. It’s the great Australian dream.

For many of us, owning your own place, is a dream that still comes true. A place to call home and create memories. But unless you’re incredibly fortunate, buying your own home means a considerable debt – probably the biggest debt 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 family’s home depends entirely on your ability to pay your mortgage.

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

So what happens if something goes wrong?

A serious injury or illness that prevents you working may immediately compromise that ability, while death would, obviously, make it 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.

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 dependents too, the need to ensure their lifestyle and futures are as protected as possible. 

Think you’re OK with life insurance in super?

Seventy per cent 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 face serious financial difficulties should you not be able to work – or if you are no longer around.

That’s why it’s a good idea to check in regularly with your financial adviser to ensure your levels of cover are appropriate for your current 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/

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