This offers borrowers the security of knowing that a portion of their income would be replaced if they are off work due to an accident or sickness.
For example, if you are in an accident and are unable to work for a while, a lack of comprehensive income protection cover means you will rely solely on state benefits, which are unlikely to be sufficient to meet your mortgage repayments, let alone any other essential spending.
Income protection can help as it provides a tax-free monthly payment until you are able to return back to work, retirement or death.
Mortgage Payment Protection
This is one of the most common protection products as a mortgage payment is often someone’s biggest commitment.
Commonly known as Accident, Sickness and/or Unemployment cover (ASU), this can give you peace of mind knowing that, in the event of compulsory redundancy or illness, your mortgage payments will be made and your home will be safe.
Most standard mortgages do not have any protection insurance included, so it’s important to decide what kind of separate cover you need.
Usually payments are made for up to a maximum of 12-24 months, but if you would like to be covered for longer than this you may want to consider taking out income protection.
Payment Protection Insurance / Short Term Income Protection
Payment Protection Insurance and Short Term Income Protection Insurance can provide a monthly income to help cover your regular outgoings if you can’t work due to an accident, illness/injury.
There are important differences between these products, and Income Protection Insurance. They include a limit on how long the replacement income will be paid for – usually between 12 and 24 months. By contrast, Income Protection Insurance will pay out for as long as you are unable to work (up to the policy expiry).
Unemployment cover is often an optional extra on these policies, or can be purchased as standalone cover.
Payment Protection Insurance is optional. There are other providers of Payment Protection Insurance and other products designed to protect you against the loss of income. For impartial information about insurance, please visit the website at www.moneyadviceservice.org.uk