What is Income/Mortgage Protection and How to Make it Affordable

The two main reasons people don’t take income protection is the affordability and complexity. Most people opt for more traditional personal lump sum covers like Life Insurance because it’s easy to understand.

Income and Mortgage Protection are often overlooked due to the expense and because they can be difficult to understand, there are Wait Periods, Benefit Periods, Monthly Benefits, Partial Payments, Agreed Value and Indemnity.  However the chances of you becoming disabled and forced to take time off work are high. What would you do to support your family and meet the day to day costs of living if you were off work for 12 months?

‘More than one in four of today's 20-year-olds can expect to be out of work for at least a year because of a disabling condition before they reach the normal retirement age.’ [1]

Income and Mortgage Protection can be made more affordable by selecting a different Wait and/or Benefit periods.

In an ideal world we all should have a four week wait that will pay out to age 65 or 70. That means if you were unable to work after four weeks your Income Protection would pay a percentage of your monthly salary until you returned to work, up to age 65 or 70. The reason we all don’t have this cover is the cost,  but this should not mean we should ignore income protection completely.

The ability to manage a longer Wait Period (see Wait Periods for Income Protection) to eight or thirteen weeks significantly reduces your premium.

Choosing to limit your Benefit Period to Two or Five Years will help reduce your premiums. In case of two year benefit most polices pay out two years per disability i.e. two years for cancer, another two years for heart attack, another two years for a lower back injury.  Some polices will reset to the full term if you return to work for a period of time. Not all polices have the same features and benefits so it pays to compare.

1. [1] Social Security Administration, Disability and Death Probability Tables for Insured Workers Born in 1997, Table A.