Protecting your income - how important is it?
It’s the age-old worry. What would you do if you were seriously ill or injured? Would your savings be enough? For most, the answer is no. Yet, despite the increasing number of income protection policies being taken out, there is still a large proportion of homeowners that run the risk of not making mortgage payments if they were to fall ill.
The policies are simple to understand. It gives policy-holders the reassurance that, if something was to happen to them and they were no longer able to work, their income would be protected.
So why do so many fail to take out income protection or critical illness cover?
Pessimism and suspicion. Before the days of stringent lending and the Mortgage Market Review (MMR), numerous cheap, and often flawed, plans were abundant within the market. This is obviously all in the past now. But, as Harlan Hogan famously said, “You never get a second chance at a first impression.” And it seems that this is the mentality that many home-owners continue to hold.
But is it necessarily the right one?
John French, Sales Director from Mortgage Advice Bureau at Farrell Heyworth Estate Agents discusses the policies in more detail.
What is income protection?
If you ever become unable to work after suffering from an illness, injury or disability, then this insurance will replace a proportion of your monthly income, usually up to about 70 per cent. These monthly payments are tax-free and can help to cover regular bills such as mortgage payments, gas and electricity bills and council tax.
The levels of income protection are split into three categories:
‘Own Occupation’ is a type of policy that will cover you if you are no longer able to perform your own specific job, and this is usually the most expensive cover. An example of this would be, if you were a surgeon and injured your hands, you would be unable to carry out you “own occupation”.
‘Suited Occupation’ is where the policy will pay out if you are deemed unable to do a job that isn’t your original but is suited to your experience and skills. For example, if you were a financial director but couldn’t carry out the role due to stress, you may take out a less stressful position as an accountant and the policy would make up the difference in your salary.
‘Any Occupation’ is the strictest of the policies where you are deemed unable to work in any job that is reasonably suited for you in terms of education, experience and age.
What is critical illness cover?
Unfortunately, serious diseases and conditions such as cancer, strokes or heart attacks are part of life. Critical illness cover (CIC) is a policy that offers a tax-free lump sum on diagnosis of such conditions that can be used to pay off any debts that you may have. If your child is affected by a serious health condition, a portion of your CIC sum is also usually paid out.
If you suffer from an existing illness or pursue a lifestyle choice that carries additional risk, such as smoking, it’s worth noting that you may have to pay a higher premium.
It’s a small sacrifice…
Paying a relatively small monthly fee for protection is a small sacrifice for the greater good, both for you and your family. It is important to speak to a financial adviser who will be able to look at all of the available policies on offer and find the one best suited to your circumstance.
For further information please call into your local Farrell Heyworth office, freephone 0800 389 1666 or visit www.mortgageadvicebureau.com/farrellheyworth .
For insurance business, we offer products from a choice of insurers.
Your home may be repossessed if you do not keep up repayments on your mortgage.
There will be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances. The fee is up to 1.5%, but a typical fee is 0.3% of the amount borrowed.