do I need income protection insurance for mortgage

March 18, 2024

63
While income protection insurance is not a legal requirement for obtaining a mortgage, it can be a wise consideration. This type of insurance provides you with a portion of your income if you’re unable to work due to illness or injury, helping you keep up with your mortgage payments and other financial commitments during difficult times. Deciding whether you need income protection insurance depends on your financial situation, your employment benefits, and your personal risk tolerance.

What is Income Protection Insurance?

Income protection insurance is designed to pay out a regular income if you’re unable to work because of illness or injury, typically covering a significant portion of your pre-tax salary until you can return to work, retire, or the policy term ends.

Why Consider Income Protection?

Mortgage Payments:

It ensures you can continue to make your mortgage payments even if you lose your income due to health issues.

Financial Security:

Provides peace of mind knowing you and your family have financial support during periods of illness or injury.

Complement to Savings:

Even if you have savings, income protection can offer a longer-term solution without depleting your savings entirely.

Evaluating Your Need:

Employment Benefits:

Some employers offer sick pay or similar benefits. Check what your employer provides and for how long, as this might influence your decision.

Other Insurance Policies:

If you have other forms of protection insurance, such as critical illness cover or life insurance, assess how these might overlap with or complement income protection.

Financial Resilience:

Consider your financial commitments and how long you could manage without your regular income. This can help determine the level of cover you might need.

Choosing the Right Policy:

Coverage Level:

Decide on the percentage of your income you’d like the policy to cover. Most policies offer between 50-70% of your pre-tax salary.

Waiting Period:

The policy will have a deferred period before payments start. Choosing a longer waiting period can reduce the premium cost, but you’ll need to ensure you can cover expenses during this time.

Policy Term:

Consider whether you want short-term cover (which pays out for a limited period, usually one or two years) or long-term cover (which can pay out until retirement, death, or the end of the policy term).

Professional Advice:

Consulting with a protection specialist can provide tailored advice based on your specific circumstances and needs. We can help you navigate the various policy options and ensure that you have the right level of protection.

Conclusion:

Income protection insurance can be a crucial safety net for homeowners, especially those with significant financial commitments like a mortgage. While not mandatory, it’s worth considering as part of a comprehensive financial plan to ensure you and your family are protected against the financial impact of unforeseen health issues.

Answered by:

Alison Gibson

Ascot Mortgage Expert

Last Updated:

18.03.2024

Answered by:

Alison Gibson

Ascot Mortgage Expert

Last Updated:

18.03.2024

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