When you’re buying a home, it’s easy to focus on finding the right mortgage, saving for a deposit, and planning your move. But have you considered what would happen if illness or injury meant you couldn’t work for several months?
For many people, their income is their biggest financial asset. If that income stops unexpectedly, paying the mortgage and other household bills can quickly become difficult. That’s where income protection insurance can help.
What Is Income Protection Insurance?
Income protection insurance is designed to provide you with a regular monthly payment if you’re unable to work because of illness or injury.
Rather than paying out a one-off lump sum, it provides an ongoing income to help cover essential living costs while you recover and return to work.
Depending on your policy, payments can continue until you return to work, retire, or the policy ends.
How Does Income Protection Work?
If you’re unable to work due to a medical condition covered by your policy, you’ll usually make a claim after an agreed waiting period, often called the deferred period.
Once your claim is accepted, the insurer pays a monthly benefit, typically up to a percentage of your regular income. This money can help you pay for:
- Mortgage or rent payments
- Household bills
- Food and everyday living expenses
- Utility costs
- Other essential financial commitments
What’s the Difference Between Income Protection and Critical Illness Cover?
Although they’re often mentioned together, they serve different purposes.
Income Protection
- Pays a regular monthly income.
- Covers many illnesses and injuries that prevent you from working.
- Continues paying while you’re unable to work, subject to the policy terms.
Critical Illness Cover
- Pays a one-off lump sum.
- Only pays if you’re diagnosed with one of the specific serious illnesses listed in the policy.
- Can be used however you choose, such as reducing your mortgage or covering major expenses.
Many people choose to have both types of protection because they cover different financial risks.
Do You Really Need Income Protection?
Ask yourself these questions:
- Could you pay your mortgage if your salary stopped?
- How long would your savings last?
- Does your employer provide generous sick pay?
- Would your family cope financially if you couldn’t work for six months or longer?
If the answer to any of these concerns you, income protection may be worth considering.
Who Should Consider Income Protection?
Income protection can be suitable for:
- Homeowners with a mortgage
- Self-employed individuals
- Contractors and freelancers
- Families who rely on one main income
- Anyone without substantial savings or long-term employer sick pay
Even if you receive some sick pay from your employer, it may not continue indefinitely.
What Affects the Cost?
The cost of income protection depends on several factors, including:
- Your age
- Your occupation
- Your health
- Whether you smoke
- The amount of cover you choose
- The length of the deferred period
- How long you want the policy to pay benefits
Choosing a longer waiting period before payments begin can often reduce the monthly premium.
Why Arrange Income Protection Alongside Your Mortgage?
Buying a home is one of the biggest financial commitments you’ll ever make. Protecting your ability to keep up with your mortgage payments can provide valuable peace of mind.
While no one expects to become ill or injured, having the right protection in place can help reduce financial pressure during an already difficult time.