Mortgage protection or Income protection?

sirish1979

Hi all,

Me and my husband are presently in he process of buying our first home. all our savings will be gone for the deposit. So we are planning to out some insurance to protect our mortgage and also some percentage of our monthly expenses in some unlikely event.

So, my main confusion is whats the difference between MPPI and Income protection ? and which one to choose or which is good?

Also any advice about the best company to choose also will be great.

thanks all.

opinions4u

The starting point is to work out what you want to protect - just your mortgage payments, or something closer to your current lifestyle.

If you're taking home £2,000 a month in income and paying £800 a month in mortgage, how would you pay your other bills if an insurance policy was paying out £800 directly to your mortgage but you had little other income.

There is then the question of what do you think should trigger a payment.

Death.
Severe illness (critical illness).
Long term illness.
Redundancy.

Do you want it to provide an income (e.g. a percentage of your salary) or a lump sum?

If it's a lump sum, would it be more appropriate to pay out something linked to incomes that would be lost, rather than debt that you'd want repaying?

If it's an income, when should it start paying - can you get a cheaper premium by having a policy that kicks in 12 months after an illness starts and would an employer/savings cover that first 12 months for you?

I'm sorry I've not answered the question for you around what cover should you have and who you should buy it from. Impossible to do on an internet forum without knowing a lot more about you.

For what it's worth I had life cover for 10 times my salary when I bought my first house. Critical illness cover for the mortgage debt and a PHI policy that paid out 60% of my gross income if I was sick for longer than 6 months. I built up a savings pot of 6 months net pay and used that as my insurance against redundancy. One thing I failed to do with most of my cover is index it - so now I'm over 40 and my income has risen I'm only covered for 5 times salary and that income protection policy is only going to give me around 20% of my gross pay.

In summary, I'd say save a chunk to cover against job loss, insure your income (not your debt) against illness and make sure you have some sort of annual increase option on cover to protect against future inflation. But this isn't the cheapest way to do things.

casterweb

sirish1979 wrote: »

Hi all,

Me and my husband are presently in he process of buying our first home. all our savings will be gone for the deposit. So we are planning to out some insurance to protect our mortgage and also some percentage of our monthly expenses in some unlikely event.

So, my main confusion is whats the difference between MPPI and Income protection ? and which one to choose or which is good?

Also any advice about the best company to choose also will be great.

thanks all.

When I took out a mortgage 8 years ago, I asked the lender about mortgage protection. They gave me a quote. If I recall correctly, the max I could be insured for was outstanding mortgage balance + 25%. The problem is if your circumstances change eg you lose an income - could you survive? (gas, elec, water, phone, internet, car, petrol, other insurances, clothes, food etc, etc all have to be paid, not just your mortgage).

So I looked at income protection. When I looked at it, they covered up to 75% of your GROSS income - effectively your net income.

My mortgage at the time was £400pcm. My net income was £1100.Now get this. It was cheaper for me to get income protection for £1100 than it was to buy mortgage protection for £400pcm. Protection was for 12months in both cases.

So it was a no-brainer for me. I took out the full income protection. Was it any good? Well after I was made redundant with virtually no notice; I put it to the test. I made a claim, and I couldn't fault it. Money arrived on the dot every month, no hassle. If fact, for the first 6 months I was actually better off than at work because I could claim contrib based JSA, and saved a fortune on travel to work costs.

I found another job after 7 months so the claim ended there but it was a lifeline for me at the time.

NB: If you have two incomes coming into a household it may affect the max amount you can insure for. You will have to check with the insurers (I was living alone).

dunstonh

So, my main confusion is whats the difference between MPPI and Income protection ? and which one to choose or which is good?

Income protection isn't actually a product type. Its a classification for multiple product types (mainly thanks to the marketing men creating confusion and trying to make their product sound more important).

You have MPPI, PPI and PHI as your main income protection options. PHI (permanent health insurance) is the best quality but does come in a range of covers from very budget to very comprehensive with a load in between that. PPI/MPPI is typically a budget option as it is usually lower quality. It too can come with different restrictions/options. Somtimes it is actually best to have MPPI or PPI plus a PHI policy.

Also any advice about the best company to choose also will be great.

There is no one best company that fits all people. There are certainly better options with different companies and some dire options with others. However, usually it depends on your age, occupation, financial needs and budget as to what will be best for you.