First-time buyers guide: Income protection
When buying your first home, the idea of income protection insurance is probably last on your list. Or at least pretty low in your priorities.
It is understandable that your first thought is finding your mortgage and then buying furniture and other exciting things. But don’t neglect income protection insurance or write it off as just another bill you could do without!
We don’t want to put a damper on your search for your first property! Protecting your income isn’t as scary as it sounds. It’s about being sensible with your finances.
Buy why would someone who is young and starting out on the property ladder worry about their income?
A sudden health issue that means you can’t work can mean your income is affected. You may be a young, first-time buyer feeling at the peak of fitness., but even the fittest people get injured or have health issues.
Government reports earlier this year show that one in four people under the age of 35 have developed work limiting conditions. One of the biggest issues is mental health.
Only 6% of people in the UK have income protection insurance, according to the FCA. And with recent employer surveys showing companies are reducing their workforce and pausing recruitment, job security is a growing concern.
If you fail to protect your income you could struggle to meet your mortgage repayments. But there is a way to protect yourself in the event of illness.
What is income protection insurance?
As the name suggests, this insurance policy protects your income if you are unable to work through ill health or injury. Some insurance policies can also protect you in the event of unemployment.
It can help you pay essential bills, such as your mortgage, utilities and even food bills while you recover. The policy covers you until you get back to health, return to work or until your policy expires.
Some businesses offer income protection insurance to employees, so check to see if that’s the case for you. If not, then you may want to take out the insurance for peace of mind. It is definitely worth considering taking out a policy if you are self-employed or a business owner.
It typically covers illnesses and injuries that leave you unable to work. This includes injuries such as broken bones, mental health conditions and serious illnesses including cancer or stroke.
Income protection insurance may not cover some illnesses or injuries, such as self-harm. It may not cover some pre-existing medical conditions or illnesses that are genetic.
You need to check what is covered and be happy with that before taking out cover.
Do I need it?
If you don’t have large pots of savings or anyone to help you financially, then you may want to consider income protection insurance.
Whilst you may be lucky enough to have some time on full pay during an unexpected illness, chances are that will reduce at some point. If you only have statutory sick pay (SSP) then that may not be able to cover your mortgage repayments or all your bills. Having a policy could be useful in those cases.
The self-employed and business owners may also find taking out a policy will give them peace of mind. Not being able to work means they will not have any income and may struggle to pay mortgage repayments.
Any savings you might have are quickly spent if you are unable to work for prolonged periods without your salary. So, consider what you would do if any unexpected events took place for you!
If you are unsure, speak to us or an independent financial advisor for advice.
What income protection insurance is there?
The insurance generally covers three ways to protect income. They are:
Accident and sickness cover: This is one of the most popular policies as the cover pays out if you have a serious injury or illness that prevents you from working. Some policies also cover mental health illnesses.
Unemployment cover: No one wants to think about being out of work and without income. But current events mean job security isn’t what it once was. This type of policy covers you in the event of unexpected redundancy. It doesn’t cover you if you decide to leave a job.
Accident, sickness and unemployment cover: As the name suggests, this combined policy will cover you for most cases of injury and illness and well as forced redundancies.
Remember, that each policy is different and you need to check what illnesses are actually covered.
How much does it cost?
The cost of taking out income protection insurance varies because a number of factors need to be considered. This includes:
Age: The older you are the greater risk of falling ill and needing to make a claim.
Job: If your job carries significant risk of injury – such as a roofer – then you’ll pay more than someone who works in an office.
Lifestyle: Smokers and those with a pre-existing health condition are likely to have more expensive cover.
Length of cover: If you take out a short-term policy it will cost less than a long-term one.
Deferred period: You can defer the date the policy kicks in depending on your circumstances. For example, if you have significant savings you may wait for three months or more before requiring your replacement income. Or you may need it within a month or so. The longer you don’t need it, then you may pay less.
What do I do next?
Check out our insurance FAQs. If you think income protection insurance is for you, you can contact us today and we can put you in touch with one of our providers.
As with all insurance policies, conditions and exclusions will apply.
