By Matthew Horan CeMAP · Protection
Quick answer: Income protection pays a regular monthly amount if you can't work because of illness or injury. It's designed to replace part of your income, so you can keep paying your mortgage and household bills while you recover. It usually starts after a waiting period you choose, called the deferred period, and the longer the wait, the lower the cost. Clarity Mortgages & Protection in Altrincham gives fee-free advice on mortgages and protection together, with no obligation.
Most people insure their home, their car and their phone. Far fewer insure the thing that pays for all of them: their income.
Your mortgage payment is due every month, whether or not you're well enough to work. If you were off for several months, how would you keep up with it? That's the question income protection is designed to answer.
How income protection works
If you're unable to work because of illness or injury, the policy pays you a regular monthly amount. You can use it for your mortgage, bills and everyday costs.
The main features:
The monthly benefit. This is a proportion of your income, not the whole amount. Insurers set a limit so there's still an incentive to return to work.
The deferred period. This is how long you wait after you stop working before payments start. Common choices range from a few weeks to a year.
How long it pays. Some policies pay until you return to work, retire or the policy ends. Others stop after a set period, which can make them cheaper.
The definition of incapacity. This is how the policy decides whether you can't work. Some look at your own job, others at any job you could do. The wording matters.
How the deferred period works with sick pay
The deferred period is one of the main ways to control the cost. If you have good sick pay from your employer, or savings to cover the first few months, you could choose a longer wait and pay less.
Statutory Sick Pay is limited, and employer schemes vary widely. It's worth finding out exactly what you'd get, and for how long, before you decide.
If you're self-employed, you don't have an employer to fall back on, which can make income protection especially important.
Income protection and your mortgage
Income protection isn't tied to the mortgage in the way that decreasing term life insurance is. But it's often the cover that matters most to your mortgage payments, because it works when the most likely problem happens: you can't work for a while.
Here's how we look at it together:
Match the benefit to your outgoings. We start with your mortgage and essential costs, and work out how much monthly income you'd need.
Choose a deferred period that fits. We look at what you'd get from work and savings, and set the wait accordingly.
Review it when your mortgage changes. If you borrow more or move to a new deal, your payments may change, and the cover may need to as well.
If you want to see how it fits with other cover, read Life insurance, critical illness or income protection: which one protects your mortgage? and Is Mortgage-Only Life Insurance Enough?
What affects the cost?
Your age and health
Your job, as some occupations carry more risk
Whether you smoke
The amount of monthly benefit
The length of the deferred period (a longer wait is cheaper)
How long the policy pays out
Whether the premiums stay the same or can increase
There's usually room to adjust these to find a version that's affordable. A smaller policy you keep is better than a bigger one you cancel.
Is income protection the same as mortgage payment protection?
Not quite. Mortgage payment protection policies tend to cover only your mortgage costs and often pay for a limited period. Income protection pays an amount based on your income, usually for longer, and you can spend it on whatever you need. The details of each policy differ, so it's important to check the terms.
Frequently asked questions
What is income protection?
It's insurance that pays you a monthly amount if you can't work because of illness or injury, subject to the policy terms.
How much does it pay?
A proportion of your income, up to a limit set by the insurer. We'll help you work out the right amount.
What is the deferred period?
It's the wait between when you stop working and when payments start. A longer wait usually means a lower premium.
Do I need it if I get sick pay from my employer?
It may still be worth considering, because employer sick pay often runs out after a limited period. The question is what you'd have after it ends.
Can I get it if I have a health condition?
Often yes, but it may affect the price or terms. Always answer health questions fully and honestly.
Does it cost anything to speak to you?
No. We don't charge a fee for our advice. We're paid by the provider if you go ahead.
If you'd like to know what would happen to your mortgage if you couldn't work, get in touch. It's fee-free with no obligation. We help clients across Altrincham, Trafford and Cheshire.
About the author
Matthew Horan CeMAP is Principal of Clarity Mortgages and Protection, an independent, fee-free mortgage and protection broker based in Altrincham. He has over 10 years' experience helping individuals, families and business owners with mortgages and protection, and writes in plain English because most people aren't given the chance to understand what they're signing.
Your home may be repossessed if you do not keep up repayments on your mortgage or any other debts secured on it.
This article is general information, not advice. What's right for you depends on your own circumstances. Protection policies may not pay out in all circumstances and have exclusions and limitations, so check the policy terms. Most protection policies have no cash-in value if you stop paying or the term ends.
