Becoming Guarantor: Why Your Child’s Insurance & Estate Plans Are Now Your Business.
The “Bank of Mum and Dad” is now one of the country’s largest sources of home‑loan support. With high entry prices and tougher serviceability rules, more parents are stepping in as guarantors to help adult children buy a first home.
But here’s the part many families underestimate: becoming a guarantor is not just an act of generosity—it’s a transfer of financial risk. If your child can’t meet repayments due to illness, injury or unexpected circumstances, the lender will look directly to you.
That’s why it’s essential to ensure your child has the right personal insurance and a solid estate plan in place (hopefully) well before any guarantor documents are signed.
This article explains how these pieces fit together to protect your child, your assets, and your retirement.
Why Parents Need to Think Like Risk Managers
When you become a guarantor, you’re effectively underwriting part of the risk of your child’s mortgage. If life throws them a curveball and they can’t service the debt, the lender can call on the guarantee. Without proper safeguards, that shortfall can cascade into:
· Forced sale of your child’s home
· Pressure to release equity from your assets
· Disruption to your retirement income strategy
· Strain on family relationships at a stressful time
The Covers That Matter Most (and Why)
When there’s a guarantor in the picture, your child’s personal insurance becomes essential risk management, for them and for you. The aim is simple: make sure cash can keep flowing when life doesn’t go to plan.
Income Protection
What it does: Replaces a portion of income (typically up to 70%) if your child can’t work due to illness or injury.
Why it matters: Keeps repayments flowing without relying on parents.
Total & Permanent Disability (TPD)
What it does: Lump sum if your child can never return to work in their own or any suitable occupation (depending on policy).
Why it matters: Can clear or significantly reduce the mortgage, preventing the guarantee being called.
Trauma (Critical Illness) Cover
What it does: Lump sum on diagnosis of specified serious conditions (e.g., cancer, heart attack, stroke).
Why it matters: Provides immediate liquidity for medical costs, time off work, and stabilising finances during treatment - often the difference between distress and control.
Life Insurance
What it does: Lump sum on death or terminal illness.
Why it matters: Ensures debts are repaid and dependents are looked after, rather than parents facing a devastating financial call on the guarantee.
Estate Planning: The Missing Link in Guarantor Arrangements
Personal insurance handles the cash‑flow and lump‑sum risks, but estate planning ensures the money goes where it’s needed, fast.
· Will: Clear instructions so assets (and insurance payouts) are distributed as intended.
· Enduring Power of Attorney (EPOA): Someone trusted can make financial and legal decisions if your child can’t.
This is particularly relevant with personal insurances, because without an EPOA who will be able to make a claim, if your child is unable to themselves?
· Appointment of Enduring Guardian: For health and living decisions if incapacitated.
· Super Beneficiary Nominations: Binding nominations so super death benefits (including any life insurance held in super) are directed efficiently to the right person(s).
· Home Ownership Structure: Consider joint names vs tenants‑in‑common, and the impact on guarantees and estate distribution.
· Young Families: Guardianship provisions for minor children and a plan for debt repayment if the worst happens.
A Simple Pre‑Guarantor Family Checklist
Use this as a conversation guide before anyone signs:
1. Cash‑flow protection
Does your child have income protection that covers their real living costs and the mortgage?
2. Debt‑clearing protection
Is there TPD and life cover sufficient to eliminate or materially reduce the mortgage if needed?
3. Liquidity for health shocks
Is trauma cover in place to avoid panic selling or parental bail‑outs during treatment and recovery?
4. Estate planning
Is there an up‑to‑date Will, EPOA, and (where relevant) guardian appointments?
Are super beneficiary nominations current and binding?
5. Policy structure & affordability
Are policies structured inside/outside super appropriately to balance cash flow, tax, and claims definitions?
6. Family coordination
Have parents and child agreed on a contingency plan if income drops or rates rise?
How to Have “The Insurance Talk” Without the Awkwardness
This is about shared responsibility, not meddling. Try these framing lines:
“Because I’m guaranteeing part of the loan, it’s wise we make sure you’re protected if you can’t work.”
“This is about your independence and protecting our relationship if life throws a curveball.”
A joint meeting with an adviser often makes this easier—neutral, practical, and focused on solutions.
What Smart Families Do Next
1. Book a joint strategy session (parent + adult child + adviser).
2. Implement core insurances with pragmatic sums insured and sustainable premiums.
3. Finalise estate planning (Will, EPOA, nominations).
4. Review annually. Life changes, and cover should too.
Final Word
Becoming a guarantor can be a generous and transformational step for your children. With the right personal protection and estate planning in place, it doesn’t have to jeopardise your retirement or family assets. Put the safeguards in first, so the guarantee supports your children’s future without putting yours at risk.
Ready to put the safety net in place?
If you’d like, I can run a family protection review and map out the exact cover levels, ownership structures, and estate planning steps that fit your situation. We can get everything aligned before you sign.
