OperationWhen people come to us for a mortgages they know income enables them to take on debt. They know that paying debt without income is hard. And they know the creditor will take assets if debt repayment doesn’t happen (eg. the bank will take the house).

They also instinctively know that a reliable long-term income is a key component of getting a mortgage.

Which is why it really amazes me that people have no problem insuring their cars, boats, household contents but they struggle to comprehend the idea of covering the thing that allowed you to buy all that stuff in the first place – income.

Well done you for insuring all that crap, and failing to look after the very thing that enabled you to buy it!

You might say “Cam, the economy’s good right now and if I lost my job it would take a month to get another one. I’ll be sweet”.

My answer: “Not if you’ve got cancer bro. And certainly not if you’re dead”.

It’s a hard line. But it is the truth. Has no one ever visited a hospital or hospice and realised that most people there were working before their illness took their income? You’ve never read about car crashes in the newspaper? You’ve never heard of cancer?

Surely then, there is a case for income protection insurance? Or its close cousin – the mortgage protection policy? Something that will replace your income if, as a result of injury or illness, you can’t work.

You might then say “I’ve got cash in the bank so I could live off that”. True that, you could.

But when I look at the mortgage applications I’ve done this year I reckon people could live off savings for 3-4 months max, often less. Against that, I know major health issues tend to see people off work for 5-6 months. Sometimes more, sometimes forever.

Insurance does a lot of emotional good and is often sold (sometimes mis-sold) on that basis. But insurance also makes hard financial sense because:

  • Most people don’t have enough cash in the bank to live off for very long.
  • It’ll take too long to save a meaningful sum of money as a backstop.
  • Borrowing money to live off when you don’t have an income is hard.

 

Insurance is a fine solution to a genuine risk and you’d be mad not to consider your options. If you’ve already got a mortgage ask us about income or mortgage protection. It’s well worth the peace of mind, or the payout. It’s easy to be wise after after the event, but you’re better to be wise before – find out more about our policies and what’s involved.

About Campbell Hastie

Cam is one half of Auckland based mortgage brokers, The Go 2 Guys.

He makes a living by sharing what he knows about mortgages with people, arranging mortgages for people and then insuring people.

He doesn't claim to know everything about mortgages himself which is why he teamed up with David Mercer — hence the ‘2’ in Go 2 Guys.

He writes posts regularly on his blog and has been told he has an ability to share his knowledge in a simple and sometimes memorable way.

Feel free to comment and ask any questions. Contact Campbell Hastie m: 027 697 7789.

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