Dreaming about the day you purchase your first home? Perhaps you’re reminiscing over the elation and joy that came when your offer was accepted? Your first home is a pivotal step in your financial journey. But, for many, it can also be a wake-up call when faced with the labyrinth of personal insurance choices, and understanding which ones are most suitable for your situation.
We often get asked ‘What’s the difference between income and mortgage protection?’. Below, we compare both and explain why they could be a good fit for your plan.
To preface, we want to emphasise that there is no one-size-fits-all approach to insurance. While we can explain the basic differences between both, the one (or a combination of both) that is better for you is entirely dependent on your personal situation and suitability should be assessed by a Financial Adviser.
Mortgage Repayment Cover
At its core, Mortgage Repayment Cover (also known as Mortgage Protection Insurance) can help cover your monthly mortgage repayments if you were unable to work due to injury or illness. This will give you peace of mind while you focus on recovering.
When considering whether mortgage protection is right for you, here are some important things to note:
- Mortgage repayments are often capped.
- Mortgage Repayment Cover can cover up to 115% of mortgage repayments or can be based on 45% of your annual income.
- It can be taken out without an actual mortgage.
- Benefits are paid monthly, if you become disabled.
There are other benefits to Mortgage Repayment Cover, however for the sake of simplicity, the above are some of the most important ones to note. Speak to your adviser about the suitability of this cover for your situation.
Income protection
Similar to mortgage protection insurance, income protection provides a regular payment, but can replace up to 75% of your income should you be unable to work due to illness or injury. It can be a powerful tool to cover your income until you can return to work and could provide cover through to retirement if necessary
We examine income protection in further detail in a recent blog post which you can read here.
Which one should I get?
Understanding which one is best is entirely dependent on your financial situation. For some, both income and mortgage protection could be sensible, and for others just choosing one over the other is enough.
Some factors you want to consider when forming a protection plan include:
- The repayment timeframe of your mortgage.
- The size of your home loan.
- Other expenses you need to cover.
- Your age and life stage.
While navigating personal insurance can be daunting, you don’t have to do it alone. Our expert insurance advisers can be your guide to understanding the coverage most appropriate for you. There really is no one-size-fits-all approach, and it’s not as simple as chasing the cheapest deal (which, arguably, shouldn’t be your first port of call).
If you’d like to review your current insurance plan and ensure it’s still fit for purpose, please get in touch with us to book an appointment with one of our expert advisers.
To learn more, call us at 0800 438 238 or email hello@advicefirst.co.nz.
