Do homeowners need income protection?

Deciding to take out a mortgage is a huge decision that can affect you financially for the rest of your life. It’s one that people usually take with the view that their income will always be there. We tend to think the alternative – losing our income – just won’t happen to us.

Of course, no-one can truly predict what’s round the corner for their health, physically or mentally, so having income protection in place if you’re a homeowner is sensible. It’s there to make sure you’d be able to keep up with your monthly mortgage payments if you were ever signed off work for medical reasons – which could happen to any of us. It’s more common than we like to think.

What is income protection?

Put simply: income protection is an insurance policy that pays out if you’re unable to work for any medical reason – physical or mental, illness or injury. Crucially, it doesn’t pay out for any other kind of income loss, like redundancy.

The idea of this kind of cover is to protect yourself financially in case you couldn't work for a long time for health reasons. People typically claim on their income protection policy for things like long-term back pain, serious injuries caused by accident, and depression, but also for other illnesses like cancer, heart attacks and strokes.

Income protection offers a longer-term solution than something like sick pay – and also prevents you from needing to use your savings, take on debt, or significantly change your lifestyle. And if you have a mortgage, income protection could be the thing that protects your monthly mortgage payments if you find yourself unable to work.

How does income protection work?

As with any insurance policy, you pay a monthly premium to be insured; then, if you’re signed off work for medical reasons, you’ll receive monthly income protection payments.

Most insurers will cover up to 50-60% of your income, which is usually enough to make sure the essentials are covered – like your mortgage, bills and food. All income protection policies will have a waiting period before they start paying out. The longer your waiting period, the cheaper the insurance will be – but you’d need to be able to tide yourself over without an income for the time that you’re waiting.

When buying cover, you have the option of short-term income protection, which covers you for a fixed amount of time if you’re unable to work (like 1, 2 or 5 years), or full-term income protection, which will cover you for as long as you can't work, however long that is. Full-term is more expensive than short-term for that reason, but as it covers you indefinitely, it gives you complete peace of mind that you’d always have money coming in, however long you were off sick.

For more on the ins-and-outs of income protection and how it works, read our complete guide.

Do I need income protection as a homeowner?

With as big a commitment as a mortgage, not being able to keep up with your monthly payments can have serious repercussions on you, your home, and your loved ones. This could add extra stress at a time when you need it least – when you’ve been signed off work due to ill health.

If you’ve got income protection in place, you won’t face this problem. It makes sure you’ve always got enough money coming in to cover the essentials; which might not be the case if you were relying on sick pay or savings.

What's the risk of not having income protection as a homeowner?

A mortgage is often taken out in the knowledge that you’ll be fit and healthy enough to carry on working over a long period of time. Having a mortgage can be a great investment – but if you suddenly find yourself unable to pay your monthly fees, it can become a burden.

For some people, this would be an issue straight away. It could mean needing to use up savings, take on debt, or significantly change your lifestyle. Others might be able to keep themselves afloat for a few months with sick pay and savings, or someone else supporting them – but what happens if you become ill over a longer period of time?

Income protection offers a longer-term solution to all of these options in case this happens. It ensures your mortgage repayments will always be covered, so you can carry on living in your home without fear or anxiety while you get back to full health.