With so many different insurance policies available, it’s not always clear which ones you definitely need as a legal requirement to get a home loan, and those that are optional.
Life insurance
Contrary to popular belief, you do not need to take out life insurance in order to get a home loan.
One of the main reasons why people take out life insurance is to ensure that their families are able to carry on paying the home loan, in the event of your death. The consequences of not being able to pay your home loan could end in your family being forced to sell their home and move out, which wouldn’t be the preferred option at all.
What insurances do I need to get a home loan?
Most lenders will require you have home insurance before purchasing a new home.
Home or building insurance covers your home against any damage that may need to be repaired. This type of insurance only applies to the structural aspects of your home i.e. the walls, roof, floors, fixtures and fittings etc. not the actual contents of it.
Lenders need to know that you have home or building insurance in place, as their primary concern is the value of your property. For instance, if a fire was to break out in your home, without home or building insurance to cover the costs of the repairs, the value of your house would decrease, so the house wouldn’t be worth the amount of money you borrowed. This means that ultimately, the lender wouldn’t be able to get back what they leant you for the purchase of it.
Ultimately, this is the reason why home or building insurance is required by most lenders when you get a home loan, whereas life insurance isn’t. But aside from this, it’s a good insurance to have anyway, as why wouldn’t you want to look after what is probably the most prized asset you own?