We learned recently that just 17% of the adult population in the UK has income protection insurance.
Despite this, nearly double that amount are more concerned about taking out pet insurance.
Prioritising your pooch or cat’s needs over your own is admirable, but what about when the worst happens? Given how relatively inexpensive both pet and income insurance are, why not plan for all scenarios – both two- and four-legged?
It’s not just pets, either. A 2018 report by Zurich UK found that many people are more likely to insure their smartphones than their income.
We know you’re glued to it, but is your iPhone really more important than the ability to put food on the table?
But, what about your mortgage? Is mortgage payment protection insurance (MPPI) something you should be taking out?
What is mortgage protection?
You’d be forgiven for giving up, fast, when you start looking into MPPI – it’s a confusing picture. It’s also easy to get income protection and mortgage protection mixed up, when they in fact come in several forms.
There’s a good reason for this. The different types of protection you can take out are all designed to cover specific circumstances and personal situations. Some will replace your income if you suffer an illness while others continue to make your mortgage repayments if you’re unable to do so.
To make sure you choose the right one, you need to first get your head around the four main types.
Mortgage protection: 4 options
It’s natural human instinct to protect those closest, and protection insurance aims to give you peace of mind if the worst should happen and you can no longer work.
Here are the four most common types of protection and how they link to your mortgage.
- Life insurance. There are two options here if you pass away – decreasing mortgage life cover for capital repayment mortgages (the sum insured reduces with your mortgage balance), and level term cover, which pays out a lump sum.
- Income protection. If you have an accident and can no longer work, this cover can be used to repay or reduce your mortgage.
- Family income benefit. This pays out a regular income so life’s essentials above and beyond the mortgage (food, clothing, and utilities) can still be purchased.
- Critical illness. Delivers a tax-free lump sum after the diagnosis of a specified critical illness.
Do I have to take out mortgage protection?
Nope. Just like many forms of insurance, the above types of cover aren’t compulsory.
However, it’s vital that you think about how you’d cope in the event of critical illness or injury. Will you be able to continue paying what is probably the biggest loan you have and keep the roof above your – and your family’s – head?
Anything else I should know?
Before you make any decisions on mortgage protection insurance, there are a few things to take into account.
Start with your work contract. There’s a chance you might have life cover of some form as part of your employment. Check with HR and find out if that’s the case and, if so, what level of cover you have.
Any policy you take out will have minimum claim and excess periods. These should be added together to determine when you’ll receive that all-important first payment. Sometimes, it can take longer than a year, so make sure that’s realistic for your situation and the relationship you have with your employer.
There are short-term income protection policies available which usually work out cheaper but bear in mind that they’ll probably only cover you for a year or two. Long-term policies will instead pay out until you return to work or hit retirement age.
If you have any pre-existing medical conditions, some insurers will exclude cover for them. The same goes for redundancy; if you know that’s a risk when you take out a policy and it can be proved that was the case during a claim, they may not pay out.
Gough – it’s all in the name
When we started Gough Mortgage + Protection, the name of the business was incredibly important to us.
We chose it because we wanted to make it clear to our customers that we’re not just about helping them find the best mortgage. For us, income protection goes hand-in-hand with any mortgage, and we’re passionate about ensuring people don’t miss out on this vital cover.
If you want to talk mortgages and adequate income protection should the worst happen, just get in touch with us today.