Homeowners encouraged to consider income protection

LifeSearch, a mortgage protection specialist, has listed its five top tips for homeowners. By following these guidelines, consumers will be able to protect their mortgages against all contingencies, and give themselves peace of mind.

LifeSearch finds that many people consider protecting their mortgage, but they usually select a policy that will pay the mortgage when they can’t work. What they actually should be protecting is their income, which not only pays the mortgage, but also pays all the other bills and the everyday cost of living.

The first instruction is to shop around. Don’t rely on your bank or other tied source to provide the best advice – it can often be very expensive. Contact a range of companies, or let an independent broker search the market for you to find the best deal.

Secondly, don’t buy Mortgage Payment Protection Insurance (MPPI) without considering Income Protection. MPPI plans can be inferior and may cost more. Typically, MPPI will only pay out for one year, includes a number of important exclusions and both the premiums and the conditions of the policy can be changed at short notice. Another advantage of Income Protection is that it protects your salary rather than just your mortgage repayments. If redundancy is a concern, unemployment cover can be added to a policy.

Then, check your employee benefits as there is little point taking out a personal policy if you receive income protection through your employer. If you do not receive benefits, or are self-employed, it is important to consider your protection options as soon as possible.

The fourth tip is don’t borrow more than you can afford. Many people take out a mortgage at the limit of their budget and then can’t afford to protect the mortgage against financial difficulty.

The final recommendation is to seek independent advice before buying. Considering all the available options can be highly complex. The Which? Insurance fact sheet recommends that advice is taken for Income Protection, Mortgage Protection, Critical Illness, Life Insurance and Payment Protection Insurance. An adviser would find the best policy for an individual’s needs and ensure a new policy is in place before an existing one is cancelled.