Introduction
Your mortgage is often your biggest monthly expense. But what happens if illness, injury, or an unexpected health condition stops you from working?
This is where income protection insurance becomes essential. It provides a financial safety net by replacing part of your income, ensuring your mortgage payments, bills, and daily expenses are covered.
In this guide, we explain how income protection works, why homeowners need it, and how to choose the right policy.
What Is Income Protection Insurance?
Income protection insurance is a policy that pays you a regular monthly income if you’re unable to work because of:
- Illness
- Injury
- Disability
It continues until you return to work, reach retirement age, or your chosen policy term ends.
Why Is Income Protection Important for Mortgage Holders?
Your mortgage lender expects payments every month — even if your income suddenly stops.
Income protection ensures you can still afford to pay your:
- Mortgage
- Utility bills
- Groceries
- Household expenses
This prevents missed payments, arrears, and the risk of repossession.
How Income Protection Insurance Works for Mortgage Payments
1. You choose a percentage of income to insure
Most policies cover 50–70% of your gross monthly income.
This amount is paid to you tax-free during a claim period.
2. You select a waiting period (deferred period)
The waiting period determines when payments start. Common options:
- 4 weeks
- 8 weeks
- 12 weeks
- 26 weeks
Shorter waiting period = higher premiums
Longer waiting period = lower premiums
Many homeowners choose a waiting period that matches:
- Their employer’s sick pay policy
- Their savings
- Statutory Sick Pay (SSP) length
3. If you can’t work, the insurer pays your monthly income
Once the deferred period ends, you receive monthly payouts until:
- You recover and return to work
- The payment term ends
This ensures your mortgage payments are consistently covered, even during long-term illness.
4. Payments continue during long-term illness
Some policies offer:
- Short-term cover: pays for 1 or 2 years
- Long-term cover: pays until retirement age if needed
Long-term policies provide the strongest financial protection for homeowners.
Types of Income Protection Policies
1. Full Income Protection (Comprehensive Cover)
Pays you monthly until you return to work or retire.
Best for homeowners with dependents or high mortgage commitments.
2. Short-Term Income Protection
Covers you for 1–2 years per claim.
More affordable but limited for long-term illness.
3. Guaranteed, Reviewable, and Age-Banded Premiums
- Guaranteed premiums: stay the same
- Reviewable premiums: can increase based on risk
- Age-banded premiums: rise annually as you age
Does Income Protection Cover Redundancy?
No. Traditional income protection covers illness or injury only.
If you want redundancy cover, you need:
- MPPI (Mortgage Payment Protection Insurance)
or - A separate redundancy insurance policy
Income Protection vs MPPI (Mortgage Payment Protection Insurance)
| Feature | Income Protection | MPPI |
|---|---|---|
| Covers illness/injury | ✔ | ✔ |
| Covers redundancy | ✖ | ✔ (some policies) |
| Percentage of income | 50–70% | Only mortgage amount |
| Duration | Long-term or short-term | Usually 1–2 years |
| Flexibility | High | Limited |
Income protection is more comprehensive, especially for homeowners who want long-term security.
How Much Does Income Protection Cost?
Premiums depend on:
- Age
- Health
- Smoking status
- Job type
- Income
- Waiting period
- Whether cover is short-term or long-term
The younger and healthier you are, the lower the cost.
Who Should Consider Income Protection Insurance?
It’s ideal for:
- Homeowners with monthly mortgage payments
- Self-employed workers (no sick pay)
- People with dependents
- Anyone relying on their income to pay bills
If losing your income would cause financial stress, income protection is essential.
Benefits of Income Protection for Mortgage Payments
✔ Keeps your mortgage safe during illness
✔ Provides monthly tax-free income
✔ Offers long-term financial stability
✔ Reduces stress during medical recovery
✔ Complements mortgage protection and life insurance
✔ Protects your home from repossession risks
Conclusion
Income protection insurance is one of the best ways to secure your mortgage and protect your family’s financial well-being. Life is unpredictable, but your home shouldn’t be at risk because of illness or injury.
By understanding how income protection works — and choosing the right level of cover — you can maintain peace of mind, knowing your mortgage payments will always be taken care of.