Mortgage Protection and/or Income Protection?

daveg56

Am in the process of reassessing my insurance needs and am trying to understand the difference between these two types of policies.

If IP can also include mortgage cover, why have separate mortgage protection as well. I currently have both, probably as a result from an over eager advisor at the bank where I have my mortgage.

Any general guidance in this area would be appreciated.

Thanks
Dave

dunstonh

Im going to describe the generic versions. Some providers will vary the terms a bit but don't want that to confuse this response at this stage.

accident, sickness and unemployment (ASU) covers only for 12 months and usually has a deferment period of 60 days. It also includes unemployment cover.

Permanent Health Insurance (PHI) covers you until the expiry date (which can be as high as your retirement age). It has a selectable deferment period of 1 month to 12 months. It does not cover unemployment.

A common solution is to get ASU and PHI but set the PHI to have a 12 month deferment to kick in when the ASU stops. That way you get unemployment cover to the maximum and accident and sickness to the maximum. Nothing to do with over eagerness from the advisor. It is generally considered to be the best way to do it.

If you are self employed, you may not see the need for unemployment cover so you may not bother with ASU at all (it does cover self employed but the restrictions are usually, IMO, enough to invalidate any payout). In these cases, the deferment period on the PHI can be reduced to suit budget and desire to be covered.

One thing to note is that bank insurance products are generally much more expensive than the rest of the market place and often have lower features. They are designed to be sold low knowledge sales people to low knowledge consumers. So they reduce the options to keep it simple. The higher price reflects the cost of advice to the bank and the fact that someone buying from a bank rarely shops around.

Any independent mortgage advisor, IFA or website should have no problem beating the bank pricing.