If you’ve been looking into insurance to support you if illness or injury unexpectedly prevents you from working, you may have come across mortgage protection insurance and income protection insurance. Both types of covers offer a similar product, but they aren’t the same. Several key differences set them apart, such as overall purpose, flexibility, and cost.
To find out exactly what sets the two apart and which is more suited to your circumstances, continue reading.
What is Mortgage Protection Insurance?
Mortgage protection insurance, commonly referred to as mortgage protection, is an umbrella term for various policies that are designed to protect your mortgage payments.
Depending on the policy, you may receive either a lump sum if you pass away or, in some cases, a monthly payment if you become seriously ill. It’s often set up as decreasing term cover, which means payouts typically reduce in line with the amount left to pay off to your lender.
What is Income Protection Insurance?
Income protection insurance, referred to as income protection, is a policy that provides regular payments to replace part of your income if you’re unable to work due to serious illness or injury.
You’ll receive ongoing payments, which are typically sent monthly to cover essential living expenses. The policy doesn’t typically cover any pre-existing conditions or self-inflicted injuries, only serious or long-term illnesses, such as cancer, injuries that prevent you from working, and, in some cases, mental health conditions. Waiting/deferral periods also apply.
Key Differences Between Mortgage Protection Insurance and Income Protection Insurance
Mortgage protection and income protection are similar as they both help you financially if you can’t work due to illness, injury, or, in some policies, death.
However, a few key differences set them apart.
Mortgage Protection Insurance Income Protection Insurance
Replaces mortgage repayments Replaces part of your income
Restricted to mortgage costs Not restricted to mortgage costs
Lump sum or regular monthly payments (depending on policy type) Regular monthly payments
Pays out on death or if you’re unable to work due to illness (depending on policy type) Pays out if you’re unable to work due to illness or injury
Lasts until your mortgage is paid off or policy ends Lasts until you return to work, your policy ends, or you reach retirement age
Less expensive More expensive
Mortgage protection is specifically designed to cover mortgage repayments and may pay out on death, or if you are unable to work (again, depending on the policy type), and income protection replaces part of your usual income each month if you’re unable to work.
Which is More Expensive?
Mortgage protection is generally cheaper than income protection. This is because it’s a more focused policy that covers one specific debt rather than replacing a broader portion of your income.
To give you a rough idea of what to expect, here are some approximate monthly cost estimates for each:
- Mortgage Protection Insurance – Costs typically range from around £10 to £50 per month, depending on the size of your mortgage repayments, policy type, your age, and overall health at the time of application.
- Income Protection Insurance – Costs typically range from around £20 to £100+ per month, depending on how much income you want to replace, your age, overall health, occupation, and chosen waiting period and payout duration.
Cost estimates for each policy may vary depending on your insurer.
What Insurance Should You Choose?
The type of insurance you choose depends mostly on your personal circumstances and what you need to cover – mortgage payments specifically, or mortgage payments alongside other essential living costs.
You would likely benefit from mortgage protection if:
- Your mortgage repayments are your main concern
- You want cover for mortgage repayments specifically
- You want to ensure your mortgage repayments are covered if you pass away
- You would struggle to keep up with your mortgage if you became unwell
- You have little or no employer sick pay or general financial support
- You have minimal savings to cover your mortgage repayments
You would likely benefit from income protection if:
- You receive no income from your job if you become ill or injured
- You’re self-employed with no sick pay
- You work a high-risk job that may be more prone to cause illness or injury
- You have several essential costs to cover
- You have dependents
- You have limited savings to rely on
Other Types of Cover to Consider
If neither mortgage protection nor income protection seems worth it for you, there are alternative types of cover to consider in the UK.
Life Insurance
Life insurance provides financial support for beneficiaries if you (the policyholder) pass away (or in some cases, if you are diagnosed with a terminal illness) during the policy term. It’s often provided in a lump sum payment, which can cover different types of debts, including outstanding mortgage repayments.
Unlike income protection, which provides regular payments while you’re alive and unable to work due to illness or injury, life insurance offers financial protection after your death.
Critical Illness Cover
Critical illness cover provides financial protection if you’re diagnosed with a serious illness, which is specified within the policy, rather than a general inability to work. Common diagnoses often include cancer, strokes, or heart issues.
Critical illness cover only pays out upon diagnosis of specific conditions, whereas other policies, such as income protection, cover a broader range of illnesses and injuries.
We Can Help You Decide What’s Best
At JG Mortgages, we have an experienced team that can advise you on the best insurance and the most suitable policy to suit your circumstances.
We can help arrange both mortgage protection and income protection to ensure essential payments are covered when you need financial support most. Our goal is to find a policy that suits your needs and helps protect your family if anything unexpected happens.
Enquire today to learn more about our mortgage protection and income protection services.
