Owning a property is an exciting milestone that comes with financial responsibilities. While you may have saved for the purchase, unforeseen events like illness or injury can jeopardise your ownership if you're unable to work. This is where income protection becomes crucial. Income protection insurance covers mortgage repayments, household bills, and other regular expenses if you're unable to work. In today's financial climate, this type of coverage is invaluable for both first-time buyers and home movers. In this blog, we'll explore why income protection is essential for homeowners and answer key questions about how different policies operate and what coverage they offer.
What is Income Protection, and Why Do You Need It?
Simply put, income protection is a type of insurance designed to replace your income if you are unable to work due to an illness or injury. As a homeowner, you need income protection to ensure that you can continue to pay your mortgage and maintain your standard of living if you are unable to work. Without this insurance, you may find yourself struggling to make ends meet and could even face losing your home.
Doesn't Critical Illness Cover do the same?
No, whilst Income Protection is purely there to protect your income by paying out in the event you are unable to work due to illness or injury, Critical Illness Cover (CIC) is designed to pay out a lump sum upon diagnosis of a critical illness or inury. For more information on CIC check out Critical Illness Cover Explained and Understanding the Cost of Critical Illness Cover.
How Does Income Protection Work?
Income protection works by paying you a percentage of your income when you are unable to work due to illness or injury. Depending on the policy you choose, this could be up to 75% of your pre-tax income. The payments begin after a waiting period, also referred to as the Deferred Period (which you select when you purchase the policy) and continue until you can return to work or until your policy term ends.
Types of Income Protection Policies
There are two primary types of income protection policies: long-term policies and short-term policies. Long-term policies offer coverage for an extended period, often up to your retirement. Short-term policies offer coverage for a limited time, typically one to two years. A short-term policy would be a good option if you are looking to keep the cost down until you can afford to upgrade to a long-term policy.
It is essential to consider which option is best for you based on your individual circumstances and needs.
Choosing the Right Income Protection Policy
Choosing the right income protection policy is crucial. You must select a policy that covers your needs and provides the right level of protection. When choosing a policy, consider factors such as any existing cover you may have personally or with your employer, waiting / deferred periods, benefit periods and policy terms.
It is also essential to read the policy documents carefully and understand what is covered and what is not.
The Benefits of Income Protection
There are many benefits of protecting your income. Not only does it provide financial support in times of need, but it also offers peace of mind, knowing that you and your family are protected. It can also help you avoid debt and financial hardship, avoiding the need to selling your home if you fall on hard times. In short, income protection is an essential investment for any homeowner, and choosing the right policy can be the difference between financial security and hardship.
I'm Renting, Should I Consider Income Protection?
Absolutely! Income protection is crucial, especially for those who are self-employed or have limited sick pay from their employer. Similar to homeowners, renters also have vital bills to manage in order to sustain their living arrangements. If you have minimal savings (ideally a cushion of at least 3 to 6 months to cover essential expenses), it doesn't matter whether you're renting or owning; protecting your income against long-term illness or injury is a must. Prioritise income protection in your financial planning to safeguard your livelihood.
In conclusion, Income Protection Insurance might be the best investment you ever make, providing protection and peace of mind during unforeseen circumstances like illness or injury. It ensures you have a regular income, covering mortgage repayments and household bills, and offers reassurance that you're prepared for any situation.
If you would like further information on how Income Protection Insurance can make sure your finances are covered if you cannot work due to illness or injury, please get in touch with one of our experienced advisors today.
As with all insurance policies, conditions and exclusions will apply.
Published by Beechwood Mortgages Ref: 219335 with review and approval from Stonebridge Mortgage Solutions Limited who is authorised and regulated by the Financial Conduct Authority Ref: 454811.
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