what is the difference between income protection and mortgage protection

Income Protection Insurance

Purpose:

• Income protection insurance is designed to replace a portion of your income if you are unable to work due to illness, injury, or disability. It ensures that you can continue to meet your living expenses, including mortgage payments, bills, and other financial commitments, while you are out of work.

Coverage:

• Typically covers between 50% and 70% of your gross income, paid out as a regular, tax-free monthly benefit.
• Can cover a wide range of illnesses and injuries, with payments continuing until you return to work, reach retirement age, or the policy term ends, depending on the terms of your policy.
• You can choose between short-term and long-term income protection policies. Short-term policies typically pay out for a fixed period, such as 1 or 2 years, while long-term policies can pay out until retirement age.

Flexibility:

• Income protection is not tied to a specific financial obligation like a mortgage. It can be used to cover any living expenses, providing broader financial security.

Cost:

• Premiums vary based on factors like your age, occupation, health, and the length of the benefit period. It is generally more expensive than mortgage protection due to its broader coverage.

Exclusions:

• Typically does not cover pre-existing conditions, and some policies may have exclusions for certain types of illnesses or injuries.

Mortgage Protection Insurance

Purpose:

• Mortgage protection insurance (also known as mortgage payment protection insurance or MPPI) is specifically designed to cover your mortgage payments if you cannot work due to redundancy, illness, or injury. Its primary goal is to ensure that your mortgage is paid, preventing the risk of losing your home.

Coverage:

• Covers your monthly mortgage payments, including interest and sometimes associated insurance costs, for a specified period, usually up to 12 or 24 months.
• Some policies may also cover the cost of buildings insurance or life insurance premiums associated with the mortgage.
• Typically limited to covering only your mortgage payments and not other expenses like bills or living costs.

Flexibility:

• Less flexible than income protection, as it is tied directly to your mortgage payments. The payout is generally made directly to your mortgage lender.

Cost:

• Premiums are usually lower than income protection because the coverage is more limited. The cost depends on the amount of your mortgage payment, your age, occupation, and the level of coverage chosen.

Exclusions:

• May have exclusions, particularly for pre-existing medical conditions or for those who are self-employed. Some policies also have a waiting period (e.g., 30 to 90 days) before benefits begin to be paid.

Which is Right for You?

Income Protection

Mortgage Protection

Conclusion