Whilst mortgage protection and life insurance will cover the outstanding mortgage debt should you die, it won’t help with mortgage payments and other household expenditure should you find yourself out of work. To not have any is simply a game of chance.
Income protection very much acts as a more comprehensive safety net should illness or injury prevent you from working OR should you find yourself out of work for any other reason. Compared to mortgage protection and life insurance, which pays a lump sum to cover the outstanding mortgage debt should you die, income protection provides a regular monthly benefit that can be used for mortgage repayments, household bills and discretionary spending.
For many, savings alone are simply not enough to cover outgoings should you be in a situation where you are unable to work – or you find yourself out of work. To illustrate the seriousness of the issue, rising inflation has meant that nearly one in four UK savers have already dipped into their savings to cover monthly living costs – whilst being in work. Given this scenario, one can only imagine the harsh circumstances many would face without any income at all!
According to the Halifax, the average age of a UK first-time buyer is 32, whilst the average age of an income protection claimant, in 2021, was 37.3. This means that just 5 years into a mortgage, the first-time buyer is at the age where they are likely to find themselves unable to work; struggling not only with mortgage repayments but wider bills and a rising cost of living too.
5 years is also the average time period for first time buyers to re-mortgage and given the fact that many of us are now looking at new fixed rate products - as rising inflation begins to take a hold, now is the perfect time to consider some form of income protection cover. Not to have any can easily prove to be a false economy.
Recent figures show that the average claim duration, for a full-term income protection policy, is 101 weeks (almost 2 years). This suggests that prolonged periods, where income can be impacted due to illness, injury or simply losing one’s job, is entirely possible. Without income protection, making up a shortfall in income for this period of time is often well beyond the scope of most people’s savings.
In the great scheme of things – in particularly your mortgage, income protection cover isn’t ever so costly; but as already mentioned, the cost of having none at all could be far greater! The monthly premiums depend upon the amount of income that you would want; it’s possible to cover up to 70% of your gross income. To give you an example, a 30- to 40-year-old seeking cover up to the age of 65 and an income, from the policy, of £1,500 a month, would pay a monthly premium of between £35 and £40 a month.
For further advice and information on income protection, speak to independent specialists – Dunham McCarthy.