Written by: Andy Walton - Proposition Director - Protection

According to the Association of British Insurers, every year over one million people are unable to work due to a serious illness or injury. Whilst it’s easy to think, “it won’t happen to me”, with the current Statutory Sick Pay at £109.40 (as of March 2024) per week, if you’re taking out a mortgage, it’s really important to ask yourself whether you could afford your monthly bills and committed expenditure if you weren’t able to work due to ill health. If you’d struggle, it may be worth considering a protection policy.

Different types of protection policies

There are a few types of protection products, all of which do different things, but the most commonly referred to policy types are:

Income protection

These policies are more specific and generally cover a regular payment that you’d need to make, for example your mortgage. They can usually be claimed upon if you lose your job, for instance if you’re made redundant, or if you’re not able to work due to accident or illness.

Critical illness cover

This is a slightly different type of product, designed to pay a tax-free lump sum in the event that you’re diagnosed with a serious illness covered under your policy. You could use the lump sum to either service the payments on your mortgage, or pay it off completely, depending on the amount you receive in the event of a claim.

Mortgage payment protection insurance

These policies are more specific and generally cover a particular regular payment that you would need to make, for example your mortgage. These sorts of policies can usually be claimed upon if you lose your job, for example if you’re made redundant, as well as if you’re not able to work due to accident or illness. 

What if you can’t pay your mortgage?

The reason it’s so important to consider how you’d pay your mortgage in the event that you couldn’t work or lost your job is because getting behind on your mortgage repayments (or falling into arrears, as it’s otherwise known) can mean that your credit rating is severely impaired.

If that happens, it could mean that you would find it difficult to get accepted for credit or have challenges applying for a mortgage in the future. Worst case scenario, if you were to fall into arrears with your mortgage and weren’t able to come to an arrangement with your lender about how to repay what you owe, then you could find that your property is repossessed. If that were to happen, not only would you then lose your home, but you’d also lose also any capital you have in the property.

How much do protection policies cost?

Costs for protection policies vary depending on your age, what you do for a living, and your health profile. For example, how much you weigh, if you’re a smoker and if you have any pre-existing illnesses or conditions, as well as the level of cover you would like to put in place. Mortgage Advice Bureau have a specialist protection team who are here to understand your needs, talk you through the products which are available, and help you to get the right cover in place.

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Frequently asked questions

What is Financial Risk?

Financial risk is how likely you are to experience financial setbacks due to unforeseen factors, such as death, critical illness, disability, and job loss.  

What causes financial risk?

Financial risk can be caused by a variety of circumstances. Some of these factors are in your control, like your level of spending and lack of insurance, whereas others are external, such as the economic climate and health issues.

How does protection work?

By taking out protection policies, you can minimise the impact of these financial risks. This can be income protection or other forms of insurance, and also by having a healthy emergency fund, in case you face any financial risks that aren’t covered by your insurance.

What is income protection?

Income protection offers financial support if you’re unable to work due to illness or injury. It replaces part of your income and will continue to pay out regular, tax-free instalments until you’re able to return to work.

How do I know if I’m financially stable?

Financial stability means you have enough income to cover your expenses and have a buffer for emergencies (protection policies and savings). Our Financial Risk Assessment can help you assess your current situation and inform you if any improvements could be made.

How can I reduce my financial risk?

Unpredictable events can hurt your finances. Take a free Financial Risk Assessment to identify your vulnerabilities and explore protection options that plug the gaps, giving you peace of mind.

Important information

For insurance business we offer products from a choice of insurers.

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