Why Income Protection is Key to Mortgage Security

At this time of year, many families take time to review their finances. With potential shifts in energy costs, mortgage rates, and general living expenses, autumn offers a sensible opportunity to assess whether your financial safety nets are still robust enough for the year ahead.

While your mortgage is your biggest financial commitment, its security rests on a more fundamental asset: your income. Protecting your ability to earn is arguably the most crucial step in securing your home and lifestyle.

The Crucial Protection You Might Be Overlooking

Many homeowners sensibly protect their mortgage debt with life insurance, ensuring the property is covered if they were to pass away. However, far fewer have protection in place for what is statistically a more common event: being unable to work due to illness or injury.

• The Likelihood: Homeowners are statistically more likely to be unable to work for an extended period due to sickness or disability than they are to die prematurely. Some reports suggest that homeowners are three times more likely to have life insurance than income protection.
• The Solution: Income protection insurance is designed to fill this gap. It provides a regular, tax-free income if you are unable to perform your job due to illness or injury, helping you keep up with your mortgage payments and essential household outgoings while you recover.
• The Benefit: This is not a lump sum but a steady, monthly payment, typically covering between 50% and 70% of your pre-tax income[1], depending on the policy chosen.

This reliable, consistent income could provide stability during challenging times, ensuring your family’s finances remain under control.

How Income Protection Policies Work

Income protection policies are flexible and can be tailored to suit your financial circumstances.

A key choice is the deferred period (also known as the waiting period).

• The Deferred Period: This is the length of time between being unable to work and when the policy starts paying out. You could choose a shorter deferred period (e.g., four or eight weeks) if you are self-employed or have limited savings.
• Reducing Premiums: If you have generous sick pay from your employer that covers you for a certain time (e.g., six months), you could opt for a longer deferred period (e.g., 26 weeks or more), which generally results in a lower monthly premium.

Short-Term vs. Long-Term Cover

It is also important to consider the duration of the policy’s payout:

• Short-Term Cover: This pays an income for a fixed period, typically one or two years. This is often the more affordable option but offers limited protection for long-term health issues.
• Long-Term Cover: This continues paying out until you are able to return to work, reach retirement age, or the policy ends. This offers the most extensive peace of mind for those who rely heavily on a single income source.

More Than Just Mortgage Payments

The scope of income protection goes beyond simply covering your mortgage. The tax-free monthly payments are paid directly to you, so you could use the funds to maintain all your essential everyday costs, such as:

• Utility bills and council tax
• Food and general living costs
• Transport costs
• Other personal loan or credit card repayments

This prevents you from having to erode your savings or take on debt during a stressful time, allowing you to focus completely on your recovery.

Your Financial Review Checklist for the Year Ahead

Autumn is a good time to reflect on your current position and plans for the next year. As part of this review, you could ask yourself the following critical questions:

• Affordability: Could you genuinely afford to keep up with your mortgage and bills if your regular income stopped tomorrow?
• Existing Cover: Do you have existing sick pay or protection through your employer, and would the duration and amount be sufficient to cover your essential expenses?
• Policy Review: Have you reviewed any existing insurance or protection policies in the last year to ensure they still align with your financial commitments and family needs?

Income protection is not a standard product. Policies vary widely in how benefits are calculated, how payments begin, and their exclusions. Here at Yes Mortgage Services, we have a designated Insurance Broker who can compare options across a comprehensive panel of suppliers  to clearly explain the differences and recommend a policy that is suitable for your unique circumstances. We do not charge a fee for this advice.

To discuss your options and ensure your income and therefore your home is properly protected for the future, please book an appointment with Kelly or contact us through the contact form and we can arrange for her to contact you.