First-home buyers need personal insurance: Joe Sirianni

First-home buyers shouldn’t ignore personal insurance – such as life or disability insurance and income protection – thinking they’re too young to need it or can’t afford it.

Appropriate insurances are essential for anyone with a home loan or any form of significant debt.

It doesn’t matter if you’re a 25-year-old buying your first house or a 45-year-old upsizing the family home for the third time, personal insurance should be a not negotiable.

Anyone with a major financial commitment such as a mortgage, no matter what their age, really needs to look at having personal insurances in place to protect themselves.

There are a range of insurances on offer and understanding these helps people to put a risk management strategy in place that will work for their individual circumstances:

Income protection – Income protection insurance will cover up to 80% of your pre-tax salary if you are temporarily unable to work due to illness or injury. The premiums are tax deductible.

Trauma insurance (also known as recovery insurance) – Pays a lump sum if you are diagnosed with a serious illness such as cancer, heart attack or stroke, or undergo major surgery.

Total and Permanent Disability (TPD) insurance – Pays a lump sum if you become totally and permanently disabled.

Life cover – Also called life insurance or term insurance, this pays a lump sum when you die or become terminally ill.

While it needs to be recognised that first-home buyers are often juggling a tight budget, it's also true that they can't afford not to have appropriate insurances in place.

Insurance premiums might add an extra $80 or $100 to the monthly budget, but the cost of not having cover in place could potentially be devastating.

If the concern is that they can’t afford the $80 or $100 a month in premiums, then what happens if they are no longer able to work? How does everything from the mortgage to the electricity and groceries get paid?

The earlier in life you put personal risk insurance in place, the more affordable it will be. Generally speaking, insurance premiums for a 25-year-old are significantly cheaper than for a 45-year-old.

Taking out the insurance when you’re young and presumably fit and healthy means it’s easier to be approved for the insurance in the first place, and it will be cheaper.

Insurance industry figures show more than three out of four Australians will contract a serious illness at some stage in their working life.

Many people mistakenly believe they only need to worry about insurance when they have children.

While having a family heightens the need, if you’re a single person solely responsible for your mortgage, how would that mortgage be paid if you had an illness that meant you couldn’t work for a year?

It might be that life insurance isn’t such a priority as you don’t necessarily need to leave money behind, but income protection and trauma insurance could be the difference between being able to keep your house or not if you had an accident or became ill.

Joe Sirianni is executive director of Smartline.

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