Mortgage protection insurance protects your mortgage in certain situations, while income protection insurance replaces part of your income if illness or injury stops you from working.
They’re both designed to protect you financially, but they don’t work in the same way. To learn more about the differences between the two, keep reading.
What Is Mortgage Protection Insurance?
Mortgage protection insurance is a general term used to describe different types of insurance that can help protect you and your mortgage if you’re no longer able to keep up with your repayments.
The type of cover you choose depends on what you’d like to protect. Life insurance pays a lump sum if you die during the policy term, which can help repay your outstanding mortgage. Critical illness cover pays a lump sum if you’re diagnosed with a serious illness covered by your policy. Income protection insurance works by paying a monthly income if illness or injury stops you from working.
For example, if you take out a 25-year repayment mortgage for £250,000, you might choose a decreasing term life insurance policy. As your mortgage balance reduces over the years, the amount of cover also reduces. If you were to die during the policy term, the payout could help repay the remaining balance of your mortgage, depending on the terms of your policy.
You don’t have to choose every type of cover. Some homeowners only need life insurance, while others decide to add critical illness cover or income protection for extra protection.
What Is Income Protection Insurance?
Income protection insurance pays you a regular monthly income if illness or injury stops you from working. Instead of replacing your full salary, it usually pays between 50% and 70% of your pre-tax income, depending on the insurer and the policy you choose. You can use the money to help cover your mortgage, household bills and other everyday expenses while you’re off work.
When you take out a policy, you’ll choose a deferred period. This is the amount of time you’ll wait before payments begin after a successful claim. Common deferred periods include 4, 13, 26 and 52 weeks, and choosing a longer waiting period can sometimes reduce the cost of your monthly premium.
You can also choose how long you’d like the cover to last. Some policies pay for a fixed period, while others continue until you return to work, retire or reach the end of your policy term. For example, if you earn £40,000 a year and your policy covers 60% of your income, you could receive around £2,000 a month, subject to the terms and conditions of your policy.
If you’d like to learn more about how income protection works, read our guide on what is income protection insurance.
Mortgage Protection Insurance vs Income Protection Insurance
Both policies provide financial protection, but they don’t cover the same risks. Here’s a closer look at how they compare.
| Mortgage Protection Insurance | Income Protection Insurance |
|---|---|
| Protects your mortgage using one or more types of insurance. | Replaces part of your income if illness or injury stops you from working. |
| May include life insurance, critical illness cover or income protection. | A standalone insurance policy designed to replace your income. |
| Can pay a lump sum or provide monthly payments, depending on the type of cover you choose. | Usually pays between 50% and 70% of your pre-tax income each month. |
| Mainly protects your mortgage and your family’s finances. | Helps cover your mortgage, household bills and other living costs while you’re unable to work. |
| May pay out after death, a serious illness or another insured event, depending on the policy. | Pays out if illness or injury prevents you from working and your claim is accepted. |
| Often arranged when taking out a mortgage, but it can also be added later. | Can be taken out whether you have a mortgage or not. |
| The amount paid depends on the type of cover and the policy terms. | Payments usually begin after a deferred period, such as 4, 13, 26 or 52 weeks. |
| Can include decreasing term life insurance, where the amount of cover reduces as your mortgage balance falls. | Payments can continue until you return to work, retire or reach the end of the policy term, depending on the policy. |
Which Type of Insurance Should You Choose?
If your main concern is making sure your mortgage can still be paid if you die or you’re diagnosed with a serious illness, mortgage protection insurance may be the better option. It can provide financial support for your family and help reduce the pressure of keeping up with mortgage repayments during a difficult time. You may also want to consider whether income protection is worth it.
If your income pays for your mortgage and other monthly bills, income protection insurance may be more suitable. It pays a regular monthly income if illness or injury stops you from working, helping you keep up with your mortgage and everyday living costs while you’re off work.
Some homeowners decide to take out both. Mortgage protection insurance and income protection insurance don’t replace each other because they protect against different risks.
If you’re comparing your options, it’s worth looking at your mortgage, your monthly outgoings and any protection you already have through your employer or an existing insurance policy.
Can You Have Both Mortgage Protection and Income Protection Insurance?
Yes. You can have both mortgage protection insurance and income protection insurance at the same time.
The two policies cover different risks, so having one doesn’t mean you can’t take out the other. Some people choose both because they want cover if they’re unable to work as well as protection linked to their mortgage.
Before taking out another policy, it’s worth checking what protection you already have. Some employers provide benefits such as death in service, life insurance or sick pay, which may already give you some level of financial protection.
Find the Type of Protection You Need
Mortgage protection insurance and income protection insurance are designed to cover different risks. The right option depends on the type of cover you’re looking for and the protection you already have in place.
At JG Mortgage Services, we’ll talk through your circumstances, compare policies from a range of insurers and help you understand what’s available. Whether you’re buying your first home, moving house or reviewing your existing cover, we’re here to help.
If you’d like to discuss your protection options, book a free consultation with our team.
FAQs
Does mortgage protection insurance cover redundancy?
Not usually. Mortgage protection insurance doesn’t normally cover redundancy unless you’ve taken out a policy that specifically includes unemployment cover. If redundancy protection is important to you, check what’s included before taking out a policy.
Can I get income protection insurance if I’m self-employed?
Yes. Income protection insurance is available to self-employed people, although you’ll usually need to provide proof of your income when applying. The amount you’re covered for will depend on your earnings and the insurer’s criteria.
Can I take out protection insurance after getting a mortgage?
Yes. You don’t have to arrange protection insurance when you first buy your home. Many homeowners review their cover after moving house, remortgaging or when their financial circumstances change.
What happens if I change jobs?
Changing jobs doesn’t automatically end your protection insurance. However, it’s worth reviewing your policy if your income, occupation or employment status changes, as this could affect your cover.
Is mortgage protection insurance tax deductible?
For most homeowners, no. Mortgage protection insurance premiums aren’t usually tax deductible in the UK. If you’re self-employed or buying property through a business, it’s worth speaking to a qualified tax adviser about your circumstances.
