Protect Your Homeloan

Private Property South Africa
Ingrid Smit

PROTECT YOUR HOMELOAN

Many South African home owners neglect to take out insurance as a means of

protecting their home loans; however this is often the result of a lack of

affordability.

The Ombudsman for Banking Services has asked banks to ensure that borrowers

clearly understand the different types of insurance available, and know whether

or not they actually have life cover in place to cover the outstanding bond debt

in the case of death.

"While there's no doubt that a lack of understanding or communication is partly

to blame for the shortfall in bond protection in many instances, the problem is

often exacerbated by a large number of home owners who,

already reeling under the pressure of servicing their bonds, cannot see their

way clear to handling any additional expenses," said Gareth Kitto, Head of Value

Added Services for Bond Choice. "Life insurance is generally not compulsory,

although the banks do insist on it in some instances, such as first time buyers

or if the bond being requested is lower than a certain amount," he added,

pointing out that requirements differed from bank to bank.

Kitto said further that many home owners were unaware that there were

alternatives to life insurance since mortgage protection was a relatively new

concept that had not been widely publicised. People also did not always

understand the implications of their families being left destitute in the event

of their death, serious illness or disability, he said. "If the breadwinner dies

without having life insurance or any form of bond protection in place, the banks

will have to ascertain whether the remaining family members would be able to

afford to raise a

bond on the property in their own names. If they can't afford to do so, the home

loan will have to be called in."

In the event that the breadwinner did have life insurance, he added, the

beneficiaries could use the money to settle the home loan, although this often

meant redirecting money that had originally been intended to cover

loss of income. "In these instances, the beneficiaries normally end up having to

sell the house and moving somewhere more affordable," he warned.

Mortgage protection offers an inexpensive alternative to life insurance, and has

been created to fulfill a specific need in the market. "One of the major

advantages of a mortgage protection policy is that if the breadwinner dies, the

money will be paid directly to bank to settle the home loan. Any remaining funds

will then be credited to the estate or beneficiaries," he said. Other major

advantages were that mortgage protection offered installment cover in the event

of illness or injury, and no medical examinations were required.

A cause for concern are the tragic cases that occur from time to time, in which

the wife of the deceased borrower suddenly discovered, for a variety of reasons,

that there was no life cover in place even though she or her husband had assumed

there was. In most instances the bank had done no wrong, although it's a common

misperception that the banks were obliged to make sure that life cover was in

place. If a bank does require insurance cover, it does so to protect its own

interests. It is advisable for home owners to check whether they do have the

necessary cover required by the bank. Many already have adequate insurance cover

at good rate so they do not need the extra cover.

Commenting on Bond Choice's own mortgage protection product, BondAbility, Kitto

said that the premiums had been designed to be affordable for the man in the

street, who, at age 35, on a R800 000 bond and whose monthly salary was around

R15 000, would pay in the region of R248 a month. (Premiums varied according to

the applicant's social-economic and smoker classifications.) "One doesn't need

expensive life cover to protect your most important asset," he said, adding that

Bond Choice had instituted a policy of offering protection to all their clients.

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