Congratulations on your bond (home loan) approval! Chances are whoever granted you a bond is going to try to make even more money off you.
A common ploy by financial advisers is to pretend they are calling from the bank in connection with your bond and they need to set up a meeting. The meeting is actually only to sell life insurance to you. I am sure many a first time home buyer gets scammed into taking out unneeded cover.
Most banks suggests you have enough life insurance to cover your bond, but does not require it. Whether you need life insurance depends on your circumstances, but that is not the point of this post. If the bond is granted on condition that bond protection cover or life cover is ceded to the institution granting the bond, then you require cover if you want the bond. Sure enough the institution granting the bond will also offer you their in-house bond protection.
In South Africa most banks do not force you to cede a life policy to them, SA Home Loans on the other hand does. The major difference between normal life insurance and a bond protection policy is that a bond protection policy does not require all the medical checks that a life policy will require. I suspect therefore life insurance may be better value for money if you are young and in good health.
So how do we compare the life cover and bond protection offerings?
When you get quotes from a couple of places you will notice that some start off with low premiums that grow exponentially and other start off with a higher premium, but the premium increases less over time (logarithmic growth).
Exponential growth may be better if you pay the bond off quickly and then cancel the policy and the bond. The disadvantage is that the premiums will take bigger and bigger bites out of your income over time, so be prepared for this.
Logarithmic growth start off taking big bites out of your income but over time that will become relatively less and less. If you pay your bond off quickly and then cancel the bond and policy, you may end up paying more than you would have paid on a policy with exponential growth.
Below is a graph using the illustrative values of two quotations with the same cover. Looking at the first 15 years, one can see the the SAHL policy premium increases following a logarithmic growth curve and the Nedgroup policy premium increases following an exponential growth curve.
So which policy did I choose? Neither, I only needed cover for my spouse as it was a joint bond and I had existing life insurance, so it was cheapest to add spouse cover on my existing Discovery Life policy and then cede the required amount of the life cover.