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Read our advice guide on personal protection, here

What is Protection Insurance?

Protection insurance is a catch-all term for any form of insurance policy that protects your income and/or assets, should you become unable to earn due to an accident, illness, or unemployment. It could also refer to financial protection for your family in the event of your death, such as life insurance.

What are the different options for Protection Insurance?

Critical Illness

Critical illness cover is a type of insurance policy that provides you with a tax-free lump sum of money on the diagnosis of a critical illness. What constitutes a critical illness will be specified within the specific policy, and each provider has different definitions of which medical conditions are covered.

Unlike mortgage protection, the funds from a critical illness claim can be used as you see fit. You may wish to repay your mortgage, but it can also be useful to cover the cost of living whilst you recover, or to make any adaptations to your home, should the illness have caused permanent disabilities. You can only claim once on this type of policy, as the policy will automatically cease after the claim has been made.

Accidents, sickness and unemployment

Accident and sickness insurance covers you in the event an accident or sickness prevents you from working, however, you can also find policies that cover you in the event of unemployment. They will typically pay a percentage of your monthly salary (up to 50%) to help support the cost of living. 

The payments are tax-free and will usually pay out for one to two years, to give you the opportunity to recover and/or find a new job. 

Income Protection Insurance

Income protection insurance is a policy that is designed to protect your current income. You can claim when you are unable to work due to an accident or illness, but this does not cover unemployment. Depending on your needs and budget, you can opt for short or long-term income protection. 

Short-term income protection has more affordable premiums, but only makes payments for a maximum of two to five years. You can make multiple claims, as the policy does not cease upon claim, however, there will usually be a designated waiting period between claims.

Long-term income protection insurance, sometimes referred to as ‘whole of life cover’ works in the same way, however, it will continue to pay you until you return to work, or until retirement, should you never recover. Upon claim, monthly payments intended to replace some of your income are made, typically between 50%-65%. 

There is usually a waiting period between the time of your accident or illness, and the receipt of your first payment, known as a deferred period. This can be tailored, and most people set it in line with the cessation of statutory or employer sick pay. The deferred period can range from a month to a year, and your premiums will be lower, the longer you agree to wait.

Life Insurance

Life insurance cover is intended to protect your family, rather than yourself, as it pays out in the event of your death. It provides a tax-free lump sum payment that can be used for whatever purpose the beneficiaries choose, however, some policies are tied directly to your mortgage, and will therefore automatically repay your remaining mortgage balance.

How much does mortgage protection cost?

Your monthly premium cost will depend on a number of factors, including the level of cover, and the circumstances under which you can claim, for example, the amount of critical illnesses covered, or length of deferral period.

Your age, occupation and general health will also factor into the cost of your policy, including details such as whether or not you smoke and your family medical history. Those applicants who are older, have a high-risk job or already have ill health will typically pay more than a young, healthy person with a desk-based job.

How much will Mortgage Protection Pay Out?

This amount is generally tailored to your specific policy. If life insurance is taken out purely for mortgage protection, then it will cover the full balance of your mortgage, if you die. Critical illness cover could potentially also be set up to repay your mortgage, however, policies are very flexible, and can be adjusted to your preference and budget.

How can a Mortgage Broker help?

Here at Status Mortgage Services, our brokers are experienced in providing protection advice and will ensure that when you buy your new home, it remains your home. We have access to a wide range of protection providers and can advise you about the most suitable providers based on your priorities and budget.


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