Understanding life insurance in a home loan agreement

Understanding life insurance in a home loan agreement

Purchasing property can be a lengthy process but, there are certain steps that you, as a purchaser, could take to minimise any delays.

Author: Anathi Kies

Purchasing property can be a lengthy process but, there are certain steps that you, as a purchaser, could take to minimise any delays.

Once your bond application has been approved by the bank, the bank will send you a quotation that you will need to sign. This quotation will detail the cost of your agreement (i.e. Interest rate, monthly installment, monthly service fees etc.) and any special terms and conditions linked to the bond approval.

The bank will thereafter send an instruction to the bond attorneys who will assist you in signing all relevant documents, amongst other things. During this period, the bond attorneys will request certain documents from you that will enable them to draft the bond documents for your signature. To mention a few, these include:

  • A questionnaire asking for your personal contact details and banking details;
  • A copy of your identity document or front and back sides of your identity card;
  • Proof of physical residential address, not older than 3 months;
  • Marriage certificate (if applicable);
  • Ante-nuptial contract (if applicable);
  • Structural insurance policy and/or; 
  • Your life cover policy.

The faster these documents are provided to the bond attorneys, the quicker the process will be.

The instruction that the bond attorneys receive from the bank will include all the special terms conditions of your home loan agreement. In certain instructions, the bond is subject to you having a suitable life cover policy in place.

Banks usually have their own life cover policies or mortgage protection plans that the client may elect to proceed with in order to meet the life cover condition. You have the choice whether to elect the bank’s policy or you may choose to proceed with an external life cover policy.

In instances where the client elects the external life cover, the client will have to send a copy of that policy to the bond attorneys, who must submit it to the bank for approval. The Bank will ensure that the policy covers the correct amount. They will further assess whether the submitted life cover policy includes, but is not limited to, the following benefits:

  • A death benefit;
  • A retrenchment benefit and;
  • Permanent and temporary disability benefit.

This means that there is a possibility that bank will reject an external life cover policy if it does not meet the criteria set by the bank. Therefore, it is imperative that you understand what benefits the bank requires for your external policy in order for your policy to be approved.

Certain banks do not allow bond attorneys to continue with drafting any documents if this life cover condition has not been met, while other banks will allow attorneys to draft documents for signature and request the external policy after signature. Either way, your life policy will have to be submitted to the bank for final approval. If the set criteria is not met, your policy will be rejected which will then cause a major delay in the registration process.

Here is what we advise:

  • Once your home loan agreement has been approved, discuss your quotation with your banker or mortgage originator.
  • Make sure that you understand the cost of your agreement and the special terms and conditions stipulated in your quotation.
  • If there is a life cover condition in your special terms and conditions, immediately request a quotation that will best suit your budget as well as meet the requirements set by the bank.
  • Disclose to the insurer that the life cover policy you are applying for is to meet a condition in your bond
  • Once you have chosen which company you will proceed with and accepted their quote, immediately send a copy of your policy to your bond attorneys who will then submit it to the bank for approval.
  • If you do have an existing life cover policy, contact your insurer immediately and instruct accordingly.

Make sure that your life cover condition is not a reason for a delay in the registration process.

Should you have any questions, do not hesitate to contact us.

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