Protecting My Income: Mortgage Payment Protection Policy Or Income Protection Policy?Written on October 31, 2012 by Kirk Rice LLP
Financial Services QuestionsThe Question:
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Kirk Rice LLP answers:
Ms G.S. Asks:
I have a mortgage payment protection policy which covers me for redundancy and ill health but it only pays out for a maximum of 12 months. Is there an insurance which could provide cover for a longer period?
Peter Sharratt Answers:
An Income Protection Policy could fit your requirements as it is an Insurance that will pay a regular income in the event you are unable to work due to accident or ill health. Unlike your existing policy though, in the event of a claim it will continue to pay an income until: you are fit enough to return to work, die or the expiry of the policy. This would typically be age 65.
Prior to any claim being paid there will be a waiting period which should coincide with when your employer would stop paying you or with a timescale that you feel you could manage on your savings. As you have an existing policy which will provide an income for the first year you are off work you could possibly select a waiting period of 12 months to coincide with when the existing policy would stop paying you. Please be aware though that Mortgage Payment Protection normally covers your Mortgage Payments and possible a bit extra to cover other associated Mortgage costs such as Life Assurance etc.
Income Protection on the other had will generally be able to provide a higher level of cover; typically 50% to 60% of your income. You may want to review the cover of the existing policy and compare it with the cover you actually think you need i.e. could you manage on the income from the policy for 12 months. During a claim period the premium is normally waived and the income paid is currently tax free. If you are able to return to work the income payments would cease and the monthly premiums would restart, as indeed would the cover. This is an important point; once you have been accepted you can claim as many times as you need to during the term of the policy and you are not penalised for making a claim. The cost of the cover will be influenced by a number of factors including the waiting period, amount of cover required, your occupation and hobbies.
An Income Protection policy seems to fit your requirements although the possible policies and cost will vary considerably from one provider to another but an Independent Financial Adviser will be able to help you find the right plan. As a final point, Income Protection policies do not normally cover redundancy.
If you would like more advice regarding this issue or any other financial services matter, please contact us.
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Please note: answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made.
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