Q. I’ve just got married and wondered if I should cancel my mortgage protection insurance in favour of an income protection policy?
It’s appropriate to review any insurance cover when you experience a major change in circumstances. Concerns often relate to life insurance or as suggested above, mortgage protection.
A mortgage is usually an individual’s largest expense. It’s no surprise then people wonder how they will pay it if they are unable to work for any length of time. So some people have mortgage payment protection in place. This type of policy is often sold alongside mortgages and is designed to cover your mortgage payments should you become ill or lose your job. The amount you get will typically pay your mortgage and maybe a bit more to cover expenses such as life insurance.
Income protection on the other hand is designed to pay out a regular income if you’re unable to work due to ill health and will typically continue to generate an income until you go back to work. The level of payout is designed as a percentage of your gross income but more than 60% is possible. On the other hand mortgage payment protection will pay out for a fixed period – 12 months is typical.
The two types of policies are quite different but if you already have mortgage payment protection it’s possible to have income protection running along-side it. Here the thinking is that the mortgage protection insurance will provide short term cover whereas the income protection will start once the other policy stops paying out.
Designing appropriate cover will depend on your broader circumstances, not just on whether you are married or not. Mortgage payment protection can be something of a blunt instrument because it’s not underwritten in the same way income protection is.
If you make a claim on an income protection policy the premiums are usually waived for the duration of your claim and you can make multiple claims. Payments are tax-free and some policies pay out a tax-free lump sum on retirement. Mortgage protection will lapse when the mortgage does either because the house is sold or paid off. This is an important consideration if you’re likely to pay your mortgage off well before you retire.