When you take out a mortgage, the focus is usually on securing the loan, the interest rate, and the property itself. However, protecting that investment — and your ability to repay the loan — is equally important.
A mortgage is often the largest financial commitment most Australians will make. If something unexpected happens to your health, income, or the property, having the right insurance in place can prevent a difficult situation from becoming a financial disaster.
This article outlines the key types of insurance you should consider when taking out a home loan, including Lenders Mortgage Insurance, personal insurances (life, TPD, and income protection), building and contents insurance, and landlord insurance for investment properties.
We also discuss common gaps and mistakes, and provide a practical framework to help you determine what level of cover makes sense for your situation.
At Finstac, we help clients understand how insurance fits into their overall mortgage and financial strategy. We work alongside insurance advisers and financial planners to ensure our clients have appropriate protection in place.
If you are taking out (or reviewing) a mortgage and want to discuss insurance considerations, book a free consultation with one of our brokers.
Table of Contents
- Why Insurance Matters When You Have a Mortgage
- Lenders Mortgage Insurance (LMI)
- Life Insurance
- Total & Permanent Disability (TPD) Insurance
- Income Protection Insurance
- Building and Contents Insurance
- Landlord Insurance for Investment Properties
- Common Gaps and Mistakes
- How Much Cover Do You Actually Need?
- Practical Insurance Checklist
- FAQs
- Conclusion and Next Steps
Why Insurance Matters When You Have a Mortgage
A mortgage creates a long-term obligation. Most home loans in Australia are taken out for 25–30 years. During that time, many things can change — your health, your income, your family situation, or the condition of the property.
Without adequate insurance, an unexpected event can put your home at risk. The right insurance provides a financial safety net that helps you (or your family) continue meeting mortgage repayments and maintain your lifestyle if something goes wrong.
Lenders Mortgage Insurance (LMI)
Lenders Mortgage Insurance is not insurance that protects you — it protects the lender if you default on the loan and they incur a loss when selling the property.
When is LMI required?
Usually when your deposit is less than 20% of the property value (i.e., LVR above 80%).
Who pays for it?
You pay the premium (often capitalised into the loan), even though it protects the lender.
Can you avoid LMI?
Yes — by saving a 20%+ deposit, using the First Home Guarantee / 5% Deposit Scheme (where eligible), or having a family member act as a guarantor (with its own risks and considerations).
LMI can cost anywhere from a few thousand dollars to tens of thousands depending on the loan size and LVR. Avoiding it where possible is often financially beneficial.
Life Insurance
Life insurance pays a lump sum to your beneficiaries if you pass away (or are diagnosed with a terminal illness in many policies).
Why it matters with a mortgage:
If you have dependents or a partner who relies on your income to help meet the mortgage repayments, life insurance can provide the funds needed to pay off or reduce the loan, reducing financial stress for your loved ones.
Key considerations:
- How much cover do you need? (Often linked to the outstanding loan balance plus other debts and future needs.)
- Do you have existing cover through superannuation?
- Should the policy be owned inside or outside super?
Total & Permanent Disability (TPD) Insurance
TPD insurance pays a lump sum if you become totally and permanently disabled and unable to work again.
Why it matters with a mortgage:
A serious disability can end your ability to earn an income while the mortgage obligation remains. TPD cover can provide funds to pay down or clear the loan, reducing ongoing financial pressure.
Key considerations:
- Definitions of “total and permanent disability” vary between policies (own occupation vs any occupation).
- Cover inside superannuation is often cheaper but has more restrictive definitions.
- Many people underestimate how much TPD cover they need alongside life insurance.
Income Protection Insurance
Income protection (also called salary continuance) pays you a regular income (usually 70–75% of your pre-disability income) if you are unable to work due to illness or injury.
Why it matters with a mortgage:
Your biggest asset is often your ability to earn an income. If you cannot work for an extended period, income protection can help you continue meeting mortgage repayments and living expenses.
Key considerations:
- Waiting period (e.g., 14, 30, 60, or 90 days) — longer waiting periods usually mean lower premiums.
- Benefit period (e.g., 2 years, 5 years, or to age 65/67).
- Whether it is held inside or outside superannuation.
- Occupation rating and how it affects premiums and definitions.
For many working Australians with a mortgage, income protection is one of the most important (and often under-appreciated) insurances to consider.
Building and Contents Insurance
This protects the physical structure of your home (building insurance) and your belongings (contents insurance).
Why it matters with a mortgage:
Lenders usually require you to have building insurance as a condition of the loan. If the home is damaged or destroyed, having adequate cover helps you repair or rebuild without derailing your finances.
Key considerations:
- Sum insured should reflect the full cost of rebuilding (not just market value).
- Contents cover is often optional but important if you have valuable belongings.
- Review your policy regularly — underinsurance is a common and costly problem.
Landlord Insurance for Investment Properties
If you own an investment property, standard building and contents insurance is usually not enough.
Landlord insurance typically includes:
- Building insurance
- Loss of rent cover (if the property becomes uninhabitable)
- Cover for damage caused by tenants
- Legal expenses related to tenancy disputes
Why it matters:
Investment properties carry additional risks compared to owner-occupier homes. Landlord insurance helps protect your rental income and the asset itself.
Many lenders require landlord insurance on investment properties as a condition of the loan.
Common Gaps and Mistakes
- Having no personal insurance at all — Many new homeowners focus only on LMI and building insurance while neglecting life, TPD, and income protection.
- Underestimating how much cover is needed — Particularly for income protection and TPD.
- Relying solely on insurance inside superannuation — Cover inside super can be cheaper but often has more restrictive definitions and limited benefits.
- Not reviewing insurance when taking out a larger mortgage — Your insurance needs usually increase when your debt increases.
- Underinsuring the building — Many policies do not automatically increase the sum insured with inflation or renovations.
- Ignoring landlord insurance on investment properties — This leaves you exposed to loss of rent and tenant-related damage.
How Much Cover Do You Actually Need?
There is no single correct answer — it depends on your personal circumstances. A useful starting point is to consider:
- Life insurance: Enough to pay off the mortgage, plus other debts, plus an amount to support dependents’ future needs (education, living expenses, etc.).
- TPD insurance: Similar to life cover in many cases, as a serious disability often has long-term financial consequences.
- Income protection: Enough to cover your essential expenses (including the mortgage) if you cannot work. Most policies replace 70–75% of income.
- Building insurance: Full replacement cost of the home (get a professional valuation or use a calculator from your insurer).
- Landlord insurance: Building cover plus adequate loss of rent (usually 12–24 months) and liability cover.
It is wise to speak with a licensed insurance adviser or financial planner who can help tailor cover to your specific situation rather than relying on generic online calculators.
Practical Insurance Checklist
When taking out a mortgage, consider reviewing the following:
- Do I have adequate life and TPD cover (inside or outside super)?
- Do I need income protection, and what waiting period and benefit period make sense?
- Is my building insurance sum insured adequate for full replacement?
- Do I have contents cover (if relevant)?
- If this is an investment property, do I have appropriate landlord insurance?
- Have I reviewed my existing policies in light of the new (or increased) mortgage?
- Do I understand what is and isn’t covered under each policy?
- Have I coordinated my insurance strategy with my mortgage broker and financial planner?
Conclusion and Next Steps
Taking out a mortgage is a major financial commitment. While securing the right loan and interest rate is important, protecting your ability to repay that loan — and protecting your family if something happens to you — is equally critical.
The right combination of insurance (LMI where unavoidable, plus appropriate personal insurances, building/contents, and landlord insurance where relevant) provides peace of mind and financial resilience.
Insurance needs are highly individual. What is appropriate for one borrower may be excessive or insufficient for another. Speaking with professionals who can assess your specific situation is the best way to get it right.
At Finstac, we help clients understand how insurance considerations fit into their mortgage strategy. We can coordinate with insurance advisers and financial planners to help ensure you have suitable protection in place alongside your financing.
Questions answered.
In most cases, yes — if you can save a 20% deposit or use a government scheme. LMI is expensive and provides no benefit to you.
Both have advantages. Super is often cheaper and premiums can be paid from contributions, but definitions can be more restrictive and there may be tax implications on payout.
Enough to cover your essential living expenses and mortgage repayments if you cannot work. Most people aim for cover that replaces 70–75% of their income.
Yes. Standard building insurance usually does not cover loss of rent or damage caused by tenants. Landlord insurance is specifically designed for investment properties.
Yes, but it is often better (and sometimes cheaper) to set up appropriate cover when you take out the mortgage rather than waiting until you need it.
The complete guide
Investment property loans and structure. A plain-English guide.Everything on this topic in one place, with worked examples. No form required.
Written by
Jonathon Radford
Director
- Master of Applied Finance, majoring in Investment Management
- Advanced Diploma of Financial Planning
- Diploma of Finance and Mortgage Broking Management
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