Why you should never rely on Mortgage Protection Insurance and Lenders Mortgage Insurance provided by your bank lender!
Many of us in New Zealand dream of owning our own home. We struggle, we save, and then we go to the bank asking for money to buy our home.
But with the new Loan To Value rules set by the Reserve Bank it has never been harder for people to afford property. You now need a 20% deposit to buy your home, and a 35% deposit to buy an investment property!
Making matters worse, house prices in relation to incomes have blown out to significant proportions, to the point where the New Zealand House Price to Income Ratio (which is the ratio of median house prices to median familial disposable incomes) is 6.2 – which means you need 6.2 years of median disposable income to afford a home in New Zealand! But if you’re in Auckland, then you need 9.6 years of median disposable income to afford a home!
You’re probably wondering how this relates to the bank’s Mortgage Protection Insurance that they’ll try to sell you when they give you a mortgage, or the Lenders Mortgage Insurance that you’re forced to pay for when you get a mortgage with less than a 20% deposit.
To help you understand, let me ask you a question – what business are the banks in?
When I ask some of my clients this question they’ll say “banks are in the property investment business, because they lend most of their money for people to invest in property”. Or they’ll say “banks are in the building businesses business, because they lend money to help businesses grow”.
What do you think?
Well, if you looked at the financial statement of any bank, there is one thing you WON’T see in their asset column – property!
That's because banks are NOT in the property investment business, and don’t own any property themselves!
You know what else you WON’T see in their asset column – businesses! Banks don’t want to own any of the businesses they lend money to!
If it’s still not clear what business the banks are in, then I’ll tell you – Banks are in the LENDING business. They lend people money, and charge interest on the money they lend. All the risk is on the borrower (YOU) to make sure the debt is repaid. All the bank cares about is getting their initial loan back from you PLUS the interest.
So why does this matter?
If things go wrong, and you’re struggling to repay the debt, or you default on the loan, then the bank will come in, take over your mortgage, and SELL YOUR PROPERTY. They don’t care if it’s a good time or a bad time to sell the property. They don’t even care if the price they sell the property for is enough to repay the debt!
And you know why?
Because YOU are still liable for any debt that is left unpaid! That’s right, you’ll have to find the extra money to make sure the bank receives the full debt back.
Now you’re probably thinking “But Brian, my bank’s Mortgage Protection Insurance will kick in if I’m unable to work and pay the mortgage”. Will it? Have you ever compared bank insurance products (which are notoriously poor quality, provide very narrow coverage, and are very hard to claim on) to specialist insurance provider products? If you haven’t, then you’re sitting on a ticking time bomb.
Now some of you who have your bank’s Mortgage Protection Insurance and have also been forced to purchase Lenders Mortgage Insurance because you had less than a 20% deposit are probably thinking, “Well Brian, we’re definitely protected. If we default on the loan and the bank sells the property but the selling price is less than the debt, the insurer will pay the bank the difference!”
That’s true – but you’re still liable for the difference! That’s because Lenders Mortgage Insurance protects the lender (the bank), not the borrower (you)! The insurer will now relentlessly come after YOU for the difference that they had to pay the bank to repay the full debt.
Now this all sounds very unfair. But it is much worse for people who have purchased their Mortgage Protection Insurance and Lenders Mortgage Insurance with their bank lender.
Why is it worse?
Because your bank is both the lender and the provider of your Mortgage Protection Insurance, there is a massive conflict of interest. In fact, in some cases it may be much easier and financially better for the bank to force a mortgagee sale and rely on their Lenders Mortgage Insurance (that protects them) to recover any difference than to approve your Mortgage Protection Insurance claim (that should protect you) that would ensure you could keep your home!
So what should you do now?
If you think you might be at risk, then call me to arrange your review. It’s free, simple and we’ll make sure your home is protected!
This strategy, which is available to some business owners, allows you to optimise your personal and business insurances by significantly increasing the scope of health and injury related illnesses that you're covered for, whilst also reducing your ACC levy.
So why should you be interested?
All of us contribute to ACC, which covers you for accidents - but not for higher-risk health related illnesses like cancer, heart attack or stroke; which means ACC is not available to you for the higher-likelihood health events that can significantly impact your health and business.
What kind of impact on your business would it have if you suffered one of these critical illnesses? What impact would it have on your family?
If you don't have any insurance, then you're potentially leaving yourself, your business and your family exposed.
If you have insurance but you haven't reviewed it for a while, then you're probably not getting the highest quality insurance available within your budget.
If you have insurance and your situation has changed since you took it out (for example, you've taken on more debt, you've had children, you've divorced, you've opened a business) then you probably don't have appropriate insurances or cover levels in place.
As the key person in your business it is vital that you have the appropriate insurance strategy in place to protect you, your family and your business.
If you'd like to know more contact me so we can organise a catch up to discuss your needs. I look at all insurers in the market and identify which insurances best meet your needs, and provide you with a recommendation. I'll walk you through the process, and help you understand why I've recommended a particular protection package.
My objective is to help individuals and business owners get the most out of their insurance, so that they can focus on getting the most out of life.
Insurance premiums are lower when you’re young and healthy, and higher when you’re older and more likely to be diagnosed with an illness or disease. This is the case for 95+% of people with insurance – and unfortunately it often means that many of these people will need to make the tough decision to cancel their insurance in their older years – which is exactly when they will need their cover!
Long term affordability of insurance is an important topic that is usually not addressed until you start feeling the financial pinch of higher premiums in older age. And most people, when faced with significantly increasing premiums and low income, will decide to cancel their cover, leaving themselves and their family exposed to the effects of disease, injury and illness at a time in their life when they are more likely to make a claim!
So what can you do to avoid this situation?
Let’s look at some graphs.
Graph 1 shows the typical premium growth trend for 95+% of people with insurance, who have Stepped (or Yearly Renewable Term) premiums. You pay less when you’re young, and much more when you’re older.
Graph 2 shows the ages when men and women typically claim on their critical illness (or trauma) cover, which protects you for illnesses like cancer, heart attack and stroke - these 3 illnesses represent 80% of all trauma claims!
What similarities do you notice?
Clearly, you need to be able to afford your insurance from your late thirties onwards in order to be protected from these critical illnesses. But for many people their expenditures are highest from this point in their life, with a mortgage, kids and living expenses all reducing the amount of money they have to spend on essential insurances.
Unfortunately, the number 1 reason why people reduce or cancel their insurance is due to affordability issues.
How much will your insurance premiums increase by?
We can tell you that between the ages of 40 and 60, your insurance premiums will increase by anywhere between 450% and 950% - this means that a man with $100,000 Trauma cover paying about $40 per month at age 40 will end up paying over $300 per month at age 60!
Does that sound a bit scary to you?
Do you think you’ll have trouble affording your insurance in later life?
Do you want to lose the security of your insurance?
So what can you do to avoid this situation?
Fortunately, we can help you significantly reduce the total amount of premiums that you pay over the same period of time, without reducing your cover!
We can do this by restructuring your premium to what are called ‘Level’ premiums. This type of premium structure remains constant over a period of time that you specify, and ensures that you don’t experience the large increase in premiums that people on Stepped premiums experience.
And don’t worry – your level of cover also stays the same throughout that period as well!
You’ll therefore have certainty of knowing what your premium will be, and know that you can afford your insurance into older age.
Why haven’t you heard of this before?
Unfortunately, many advisers in New Zealand aren’t aware of all the potential solutions available to their clients, and aren’t as proactive in identifying ways to help their clients save money.
If you want to know more, please contact me for a confidential discussion. We can show you how you too can afford your insurance into older age.
How to Optimize and Structure your Personal and Business Insurances and Mortgage for maximum success and happiness
Most people know exactly how much they pay for their personal and business insurance products, but don't know what value they actually receive from their particular provider's insurances.
On the other hand, whilst most people have a very good idea of the value they receive from their mortgage i.e. the value of their home and investment properties, they often don't know the price i.e. the interest rate that they are actually paying.
In both scenarios, individuals and small business owners are often unaware that better value personal and business insurances exist, and more cost-effective mortgages are available to them. And most unfortunately, having inappropriate or incorrectly structured insurances and mortgages in place can leave them, their families, and business exposed to financial hardship and ruin.
What is most concerning is that:
New Zealand insurance expert Russell Hutchinson from Quality Product Research, studied which New Zealand policies would have made full, partial or no payout in the Australian man's case. He found Partners Life and eight other policies would be likely to have made a full payout. ASB, Sovereign and Onepath (owned by ANZ) would be likely to have made a partial payout, and policies including Westpac's would be likely to have made no payout at all.
The value of insurance is that you are paid at claim time when you suffer an illness or injury - but many people only focus on the cost of insurance, which can leave them, their families, and business unprotected. Don't let this happen to you.
This results in individuals and business owners paying much higher interest rates than they otherwise should, taking away their ability to fund holidays with their family, invest in assets for their future wealth, and their ability to afford the best-value insurance for the long term.
There are countless stories of clients only being able to pay for the cheapest insurance available, or being forced to cancel their insurance because they can't afford it anymore, particularly as they get older - yet they don't see how they can easily free up the required funds to afford the best-value insurance available by looking at their mortgage and insurance together, and structuring them correctly.
Contact me now for your complimentary consultation.
Most people who want to buy a home fall into the trap of only speaking to the bank they have their transaction account with. This limits your choices significantly, as the following diagram illustrates:
The main message you should be receiving is that your bank can only recommend their mortgage products to you - regardless of whether there are better mortgage products available to you! They will never tell you that you'd be better off with another bank.
As an independent adviser I look at mortgage products across the market, and recommend the best mortgage for you and your unique circumstances. And as a home owner and property investor myself, I understand how important it is that you obtain the right mortgage with the right lender.
Many of my clients tell me how they find the mortgage market so confusing that the 'easiest' option is just to go with their current bank - but after a consultation with me they feel much more confident about their options, and how the mortgage market works.
My promise is that i'll work with you, and for you, so that you are given the best opportunity to succeed and achieve your goals.
Contact me now for your complimentary consultation.
Many people who want to buy insurance go and speak directly to an insurance company, or to insurance advisers who work for an insurance company; in both cases, you will only be recommended one company's products, and not be given choice about the best insurer for you.
Here is a diagram that explains why you should always seek advice from an independent insurance adviser:
The main message you should be receiving is that an independent insurance adviser will review all insurance products in the market, and recommend the insurer who best meets your protection requirements - for you, your family and your business.
As an independent adviser I look at insurance products across the market, and recommend the best insurer for you and your unique circumstances.
Many of my clients tell me how they find the insurance market very confusing, and i agree! It can seem like each insurer offers the same type of cover, such as Life, Critical Illness, Income Protection, and Total & Permanent Disability - but the reality is that each insurer's products offer unique features and benefits that only an independent insurance adviser will be able to explain.
Your health is your most important asset, and if you don't protect it then not only will you suffer, but also everyone who is dependent on you. If you are the main income-earner, have dependents who rely on you, have debt against your assets, or own your own business, then you need insurance.
My promise is that i'll work with you, and for you, so that you are given the best opportunity to protect yourself, your business, and family against death, illness and injury.
Contact me now for your complimentary consultation.