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I am buying a new house and would like to know whether the bank that grants my bond can force me to take out life cover on the value of the bond?
Certain banks do impose mandatory life cover for applications that are approved for clients whose total gross salaries are less than a set amount. Certain banks also impose mandatory life cover where either the registered bond amount or the purchase price of the property are less than a set amount.
Regardless of whether the bank makes life cover mandatory, we strongly recommend having it in place. Having life cover will mean that should you pass away, your estate and your family will not be left with the financial burden of having to pay off your bond or sell the property to cover the costs.
What many people don’t know is that they are not obliged to take the life cover that their bank offers. You do have freedom of choice as to which insurer you would like to purchase your cover from.
It is very important to remember, though, that if you have existing life cover in place before you buy the property, you should purchase additional life cover for the cost of the debt. If you don’t do this, and your life cover is used to pay off the home loan debt, you will have depleted the cover amount for what it was originally put in place for, such as schooling, food, petrol, rates, electricity, water and so on.
As for the type of insurance you should take out, you have two options. You can either increase your existing life cover to cover the additional debt amount, or you can take out credit life cover, which covers the specific debt, and your life cover can remain in place for what it was originally meant to cover.