Throughout his 44 year career in banking and finance, says Mike van Alphen, National Manager of Rawson Finance, the bond origination division of the Rawson Property Group, he has, from time to time, been faced with the tragic plight of a new widow finding that she is expected to continue to keep up with the monthly bond repayments on her home – but now that her husband is dead, she no longer has the income to do this.
In nine cases out of ten, says van Alphen, the widow then has to sell the home and either downgrade to a less expensive unit or become a rent paying tenant – again, probably in premises that are not as attractive as the home she and her family were used to living in.
“This situation”, says van Alphen, “arises because, although the banks will always insist on a bond holder taking out a home owners comprehensive policy to cover the home in the event of a fire or storm damage, they do not always insist that the bond holder takes life insurance out on himself, in order to make sure that the outstanding bond is fully repaid should he die.
“If the successful bond applicant is thought to be in secure employment and in reasonable health, it is quite possible that the bank will not insist that he has life cover. However, our experience has been that cancer and heart attacks often strike people who, in all respects, appear 100% healthy and on top of their game. If the deceased’s estate is not large enough to pay off the bond and support the family, neglecting to take life cover is an almost criminally negligent act, leading to huge hardship for the widow and family.”
Certain banks, added van Alphen, will include life cover in the mortgage, but this is not, in his view, the way to go because it results in the total monthly bond repayments being unnecessarily high and the life premiums that are debited to the bond incur interest. It is, he says, far more efficient to keep the life cover separate from the bond and to pay it off with the monthly debit order.
Some of South Africa’s bond originators, including Rawson Finance, says van Alphen, make life insurance available to their clients at very competitive rates. They do this through associate companies with whom they have a relationship in order to assist the client in protecting his home and family. This, he says, is always a proposition that the client should look at.
Most bond holders taking out home owner’s comprehensive insurance, other than the banks policy, said van Alphen, should note that many insurance companies do not cover the property for damage caused by subsidence or ground movement/landslide. If there is, in the bond holder’s view, any danger of these occurring, a special policy should be taken out to cover them or they must have this included in their current policy.
Sectional title units, added van Alphen, are covered by the body insurance, and the sums owing here are recouped via the monthly levies. Separate insurance here is therefore not necessary, but again, should there be a bond on the property, the bond payer should apply for sufficient life insurance to cover the outstanding amounts owing on the bond in the event of his death.
