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First-home buyers shouldn’t ignore personal insurance – such as life or disability insurance and income protection – thinking they’re too young to need it or can’t afford it.
Appropriate insurances are essential for anyone with a home loan or any form of significant debt.
It doesn’t matter if you’re a 25-year-old buying your first house or a 45-year-old upsizing the family home for the third time, personal insurance should be a not negotiable.
Anyone with a major financial commitment such as a mortgage, no matter what their age, really needs to look at having personal insurances in place to protect themselves.
There are a range of insurances on offer and understanding these helps people to put a risk management strategy in place that will work for their individual circumstances:
Income protection – Income protection insurance will cover up to 80% of your pre-tax salary if you are temporarily unable to work due to illness or injury. The premiums are tax deductible.
Trauma insurance (also known as recovery insurance) – Pays a lump sum if you are diagnosed with a serious illness such as cancer, heart attack or stroke, or undergo major surgery.
Total and Permanent Disability (TPD) insurance – Pays a lump sum if you become totally and permanently disabled.
Life cover – Also called life insurance or term insurance, this pays a lump sum when you die or become terminally ill.
While it needs to be recognised that first-home buyers are often juggling a tight budget, it's also true that they can't afford not to have appropriate insurances in place.
Insurance premiums might add an extra $80 or $100 to the monthly budget, but the cost of not having cover in place could potentially be devastating.
If the concern is that they can’t afford the $80 or $100 a month in premiums, then what happens if they are no longer able to work? How does everything from the mortgage to the electricity and groceries get paid?
The earlier in life you put personal risk insurance in place, the more affordable it will be. Generally speaking, insurance premiums for a 25-year-old are significantly cheaper than for a 45-year-old.
Taking out the insurance when you’re young and presumably fit and healthy means it’s easier to be approved for the insurance in the first place, and it will be cheaper.
Insurance industry figures show more than three out of four Australians will contract a serious illness at some stage in their working life.
Many people mistakenly believe they only need to worry about insurance when they have children.
While having a family heightens the need, if you’re a single person solely responsible for your mortgage, how would that mortgage be paid if you had an illness that meant you couldn’t work for a year?
It might be that life insurance isn’t such a priority as you don’t necessarily need to leave money behind, but income protection and trauma insurance could be the difference between being able to keep your house or not if you had an accident or became ill.
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Joe Sirianni is executive director of <a target="_blank" href="https://www.smartline.com.au/" rel="nofollow">Smartline</a>. 
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First-home buyers need personal insurance: Joe Sirianni

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The interest rate cuts of the past year, if fully utilised, could potentially save mortgage holders more than $90,000 in home loan interest and take nearly seven years off their loan term.
A series of interest rate cuts since May 2012 has seen the official <a target="_blank" href="https://www.propertyobserver.com.au/economy/rba-statement-on-march-rate-decision/2012030653695">cash rate</a> reduce by 1.25%, with banks passing on about 1% of this.
Therefore, if you had a 30-year, $300,000 home loan at 7% back in May last year, you’re probably now paying around 6%.
This takes the required monthly repayment from $1995 a month to $1798 – let’s call it a difference of $200.
However, if you maintained your repayments at $1995, you could potentially save yourself more than $90,000 in interest and take six years and nine months off your home loan.
You end up paying about $257,000 in interest over the life of the <a href="/property-observer" target="_blank">home loan</a>, rather than about $347,000, so you’re paying about 26% less in interest.
While this scenario assumes that the interest rate stays at 6% for the life of the loan, which isn’t likely, it does illustrate the power of making extra repayments off your home loan, whatever the interest rate may be.
It’s all about good habits and discipline.
If you’ve been used to making those repayments at that higher rate, it should then be reasonably painless to continue to keep them at that same level.
Chances are most people won’t even miss the money and the benefits of not touching that money now for a major long-term benefit should outweigh any pain.
You’re effectively giving yourself $90,000 of future lifestyle – money you can use to do something significant with for you and your family.
That’s a significant amount of money for pretty well everyone I know.
Any further cuts, either by the RBA or the banks themselves, to home loan interest rates would further compound the benefits.
Joe Sirianni is executive director of <a target="_blank" href="https://www.smartline.com.au/" rel="nofollow">Smartline</a>.
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Recent rate cuts could save mortgage holders $90,000: Joe Sirianni

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Negative gearing should be viewed as a tool to get into a property investment rather than as a long-term strategy.
Investors should look to negatively gear over a short to medium time frame – no more than about five to seven years.
If you take a long-term view of your property investment, and property should always be a long-term consideration, if you are negatively geared for 20 years, that means that for 20 years you’re paying more money out of your pocket than you’re recouping from the property.
You need to view your investing in the same way you would a business. While it might be manageable to run at a loss for a short period of time as you establish and grow the business, it’s not sustainable long-term. At some stage your business – and your property investing – needs to be putting money back into your pocket.
Many people justify having their property negatively geared because they believe the capital growth of the property will make up for the losses in the long run.
While capital growth might have saved a lot of investors with negatively geared properties in recent years, I’d be cautious about relying on capital growth in the coming years.
Rather than focusing on capital growth, investors, particularly those on lower incomes, should be making investment decisions based on the income they can derive from their property.
Negative gearing generally works best for high-income earners than low-income earners. An investor on the highest marginal tax rate effectively gets 45¢ back for every $1 they spend on a negatively geared property. An investor on the lowest marginal tax rate gets 19¢ back for every $1.
When you calculate the net after tax cash flows of an investment property, being on a lower tax bracket means it’s actually costing more to run that strategy.
Ultimately, it’s actually the income that the property generates over time that is more important. For very long-term investments, it’s the income that has the most benefit and makes investing worthwhile.
Even if you get growth, that growth is really just making up for your losses, you’re not actually really moving forward.
It’s the surplus income over time – by having regular rent increases – that is going to make the difference.
A good mortgage adviser should be able to run some scenarios for you that will give you an idea of the cashflow of an investment property, potentially up to 20 years. These calculations will be indicative, but you’ll be able to see how much it’s going to really cost you.
It’s also important to seek advice from your accountant about the taxation implications of your investing.
Joe Sirianni is executive director of <a target="_blank" href="https://www.smartline.com.au/">Smartline</a>.
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Joe Sirianni

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