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Cover your loan

13 Sep 2005

In the current hullabaloo over homeowners' insurance, borrowers should not lose sight of the fact that life cover for their home loan is a good idea.

So says Willie Lategan, MD of Absa Life, who explains that while homeowners' insurance (HOC) covers the costs of repairs to the property or replacement in the event of structural damage, mortgage insurance should settle the balance owing on the loan if the borrower dies or is permanently disabled.

"Failing to take out such life cover can have disastrous consequences," he says."There have been cases where the families of borrowers who died without this cover had to evacuate their houses and find alternative accommodation, because they could not afford the repayments on the bond.

"Although the property secures the bank's risk, in the event of default due to death or disability, the family may end up homeless if the borrower's whole debt is not settled, or a new loan is not taken up by the family."

A few of the numerous advantages of having mortgage insurance, he says, are:
*The proceeds can only be used to settle the outstanding balance of the loan, so there is no danger that they will be used by the family or the estate to settle other debts or buy luxury items;

*Any other life cover that the borrower may have will be fully available to generate an income for the family after the loss of a breadwinner;

*Some mortgage protection policies even insure a bondholder against temporary disability and retrenchment by paying the bond instalments for a specific period, should the insured event occur; and

*The customer can usually pay annual premiums for mortgage insurance. This ensures that the premiums are always up to date, and reduces transactional fees.

Lategan stresses that in terms of the Long Term Insurance Act, customers must be given freedom of choice regarding life insurance purchases, and that Absa subscribes to this through its broker network, which is able to offer customers a variety of products through different life insurance companies.

Cover your loan

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