Mortgage Protection Insurance Vs. Income Protection Insurance: The Differences

The continued economic turmoil in the UK has led the majority of us to re-examine our finances. However, the loss of income in its entirety can be a financial catastrophe far beyond the choices made to sustain the cost of living.

Fortunately, there are options available for those looking to preserve their ability to meet financial commitments and maintain financial support for the ones they love, if they are unable to work. Two of the most notable of these are Mortgage Protection Insurance and Income Protection Insurance.

Of course, when considering any insurance product, it is important to familiarise yourself with the policy wording and scope of cover before purchase to ensure the policy is right for you.

So, what are some the differences between these two different types of insurance?

Mortgage Protection Insurance
For homeowners, the cost of a mortgage is likely to be one of the biggest monthly outgoings that will need to be considered in the event of loss of regular income. Mortgage protection insurance, sometimes known as Mortgage Payment Protection Insurance (MPPI) yet separate to both mortgage life insurance and payment protection insurance (PPI), can help you to maintain your monthly mortgage payments for a set period if you are unable to receive your regular income for a set period due to accident, illness or unemployment/redundancy. Typically, mortgage protection insurance is designed specifically to help cover the costs of a mortgage. However, some insurers do allow for the inclusion of other living costs up to a prediefined benefit cap.

Income Protection Insurance
By comparison, income protection insurance, is designed for a wider range of uses, whilst also designed to replace a portion of your regular monthly income for a set period of you cannot work due to accident, illness, and depending on the individual policy, unemployment and/or unexpected redundancy. Monthly amounts received as part of an income protection policy, known as a monthly benefit, are for general use in helping to maintain your lifestyle. This can include assistance in meeting any monthly mortgage costs, as well as rental fees or other living costs, therefore income protection insurance may be more suitable for those in rental accommodation, depending on their individual circumstances.

In summary, both mortagage payment protection insurance and income protection insurance can provide cover for a set period of time if you find you are unable to work. Both will also have dferral period; a standard feature of this type of insurance, which is a pre-defined period of time before your policy will begin to pay out in the event of a claim (as stated in your policy wording). The main difference rests in the purpose of the payments recieved through each policy, where whilst it is calculated as a percentage of your regular working salary, income protection may provide a higher monthly benefit as it is deisgned to cover the general costs of living as opposed to being commonly designed solely to cover any mortgage commitments you may have.

Exclusions of Cover
It is important to note that most mortgage protection and income protection policies are unlikely to provide cover for being unable to work due to existing medical conditions known about, or under investigation at the time of taking out the policy. It is also unlikely cover will apply in situation where risk of redundancy was known prior to taking out the policy.