How Much Bond Cover Do You Need?

Determining the correct amount of bond cover is a critical part of securing your home and protecting your family. Many homeowners make the mistake of taking the minimum cover — equal to the bond amount — without considering additional financial factors. While this may meet the bank’s requirement, it may not provide full financial security.

Minimum Bond Cover Requirement

The minimum bond cover should always match your outstanding bond amount. For example, if you have a home loan of R1,500,000, your bond cover should be at least R1,500,000. This ensures that in the unfortunate event of your death, your family will not have to carry the remaining debt.

However, using the minimum bond amount does not account for interest, fees, or other financial obligations. To fully protect your family, it is often recommended to take slightly higher cover.

Why You Might Need More Than the Bond Amount

Additional coverage can protect against unexpected costs and provide your family with a financial buffer. Consider the following:

• Interest on the bond: If your bond has a high interest rate or long term, the outstanding amount may increase slightly over time.
• Estate and administration fees: Settling an estate can take months and may incur legal and executor fees.
• Transfer costs: Any costs associated with transferring ownership or settling the property may not be covered by the bank.
• Living expenses: Ensuring your family can maintain their lifestyle while the estate is being processed.

For example, if your bond is R1,500,000, a recommended bond cover could be R1,700,000 to include additional costs. This ensures your family has financial security beyond just repaying the bond.

Reducing vs Level Bond Cover

Bond cover can be structured in two ways: reducing cover and level cover.

Reducing Cover

With reducing cover, the payout decreases over time in line with your bond balance. This makes premiums more affordable but only covers the remaining bond balance.

Level Cover

Level cover provides a fixed payout throughout the term of the bond. This type of cover ensures that even if the bond is partially repaid, your beneficiaries may receive surplus funds to cover other expenses such as education, debt, or lifestyle maintenance.

Factors That Influence Your Premium

Bond cover premiums are affected by several factors, including:

• Age: Younger applicants generally pay lower premiums.
• Health and smoking status: Smokers and individuals with pre-existing conditions may pay higher premiums.
• Bond term: Longer terms usually increase the premium.
• Cover amount: Higher cover amounts naturally cost more.
• Additional benefits: Disability or critical illness riders can affect premiums.

When to Review Your Bond Cover

Regularly reviewing your bond cover ensures your coverage remains adequate. Consider a review if:

• You refinance your bond or increase the loan amount
• You get married or have children
• Your financial obligations change
• Your health status changes

Regular review ensures that your bond cover keeps pace with your evolving financial responsibilities.

Examples of Calculating Bond Cover

Example 1: A 30-year-old with a bond of R1,500,000 over 20 years may take R1,700,000 in cover to include additional costs. Premiums could be R800–R1,200 per month depending on health and smoking status.

Example 2: A 45-year-old with a bond of R900,000 may take R1,000,000 to cover interest and estate fees. Premiums may be higher due to age but provide full protection for the family.

Frequently Asked Questions

Should I insure the full property value?

No. Bond cover is designed to settle the outstanding bond, not the property’s market value.

Can I increase cover later?

Yes, although additional underwriting may be required and premiums may increase.

What happens if I pay off my bond early?

You can cancel or reduce the policy to match your new bond balance.

Reducing vs level cover – which is better?

Reducing cover is cheaper and aligns with the debt, while level cover provides extra financial security to your family.