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Selecting either income-protection insurance or mortgage protection


When you cannot work for a lengthy period, you need to rely on a comfortable stream of income to cover your costs. In Australia, there are two options, namely, income protection insurance and mortgage protection. These options can offer you cover to meet your normal expenses.

Mortgage protection is very different from income protection in that it covers no more than the mortgage repayment. Income protection, on the other hand, can cover mortgage repayments as well as other bills. These could include school fees, utility bills, and even rehabilitation costs.  Either way, both come in handy should you, for example, be diagnosed with a serious illness such as cancer. In fact, the Cancer Council Australia has declared that there were 134 000 new cases of cancer in 2017. That number is projected to reach 150 000 by 2020. However, before simply choosing between income protection or mortgage protection, you should examine the differences and similarities between the two.

The similarities


Both income protection and mortgage protection offer death and disability benefits. In addition, both have the option for either level or stepped premiums. With the latter, the premiums start off low, increasing as you age. By contrast, a level premium will remain static throughout the policy period.

The differences

  • In terms of differences, mortgage protection and income protection differ on benefit payment, flexibility options, the basis for claims, and the application process.

       Insurance cover

  • Mortgage protection provides a one-off or ongoing payment to cover the mortgage repayments. There is also LMI (lenders mortgage insurance). This cover is compulsory for people buying a home with less than a 20% deposit, and it is there to cover the lender, not you. Income protection provides up to 75% of your income, which can be used to cover mortgage payments on top of other expenses.

·         Tax benefits

  • There are no tax benefits; however, with income protection, the premiums are tax-deductible.

·         Pre-existing conditions

  • Mortgage protection excludes all pre-existing conditions; however, even though the conditions may be disclosed, they are not excluded with income protection.

·         Flexibility

  • Mortgage protection has less flexibility than income protection, which allows the option for different levels of cover.

·         The application process

  • Mortgage protection does not require any blood test results or other medical test results to accompany the application. Income protection is different. Lifestyle factors such as age, smoking status, pre-existing conditions will affect the type of cover offered and the costs of the cover.

·         Ancillary benefits

  • Income-protection policies generally offer various ancillary benefits, whereas mortgage protection normally offers no such benefits.

Both have their pros and cons. Price is a factor for most people. Suppose there are no income or life protection policies in place, and there is no plan in the future for this insurance to be purchased. In that case, mortgage protection can be a great, affordable option to cover what is usually the household's biggest financial commitment.


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