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Safeguarding Your Home Using Income Protection

no PUP, no home

Imagine if you didn’t have a PUP.

Now I’m not talking about your four-legged friend.

No siree Bob, I’m talking about the Pandemic Unemployment Payment that many of us are trying to survive on since fecking COVID19 hit.

It’s not a lot of money, but it’s a lifesaver for thousands of people.

But imagine there was no PUP?

Could you pay your mortgage or would you lose your home?

Scary thoughts, I know.

But let’s say instead of being hit by the pandemic, what if you were hit by a bus or a long term illness and couldn’t work?

You wouldn’t qualify for the PUP, instead, you would apply for illness benefit which is even less than the PUP:

Again – could you pay your mortgage and keep your house if your income dropped to €203 per week?

Let’s say you currently earn €50,000, you’re taking home over €700 per week. If you’re struggling to make ends meet on €700 per week, imagine how hard life would be on €200 per week.

Even if you could cover the mortgage, what about everything else?

  • Food
  • Utility Bills
  • Holidays Staycation
  • Broadband
  • Clothes
  • Childcare

If this conversation is giving you the willies (what a class phrase),  you’re not alone, we all worry about paying the mortgage. That and leaving the immersion on, maybe it’s an Irish thing.

But instead of sitting there in a mess of stress, waiting for illness to strike you out of the blue, you can do something about it!

WARNING: Don’t get caught up in the frenzy of buying your forever home without making plans for being able to actually pay the mortgage.  If you can’t pay the mortgage your forever home will become a temporary home very quickly. Yes, the bank will be understanding…for a while…but eventually, if you can’t pay the mortgage they will turf you out.

And even if you manage to stay put, the stress of the constant fighting with the bank will wear you down and ruin your life.

So what can you do?

Well, you have a few options.

Let’s start with the one I think is a no brainer, which is income protection.

How can income protection save your home?

Similar to the Pandemic Unemployment Payment, your income protection will give you a replacement income if you can’t work due to illness or an accident.

Unlike the PUP, your income protection payment will continue to pay you for as long as you can’t work.

You can use this payment to pay your mortgage and keep your home.

Let’s look at some figures to see how much this stuff costs.

Using €50,000 as your income, I’m making you a 35-year-old, non-smoker working a desk job. Hurrah!

You want to insure up to the maximum 75% of your income, which will give you enough to pay the mortgage and maintain your current lifestyle:

Quote Type: Income Protection
First Person: Non-Smoker, born on 10/08/1985
Cover Amount: €26,944 per year until age 68 (you can also claim illness benefit of €10,556)
Occupation Class: Software Consultant (Class 1)
Deferred Period: 26 weeks

Income protection quote

That’s less than a tenner per week after tax relief to guarantee you can keep your forever home FOREVER.  Told you it was a no brainer.

What is the total cost of a mortgage?

If you’re getting a mortgage for the first time, you might be obsessed with the actual monthly mortgage repayment. But don’t forget to budget for the other essentials like house insurance, mortgage protection and some type of insurance that will pay the mortgage if you get sick and can’t work.

You should allow for these as part of the overall cost of buying your new home.

Total monthly cost of the mortgage = Repayment €1300 + house insurance €30 + mortgage protection €20 + income protection €50 = €1400 per month

Look, I know money is tight when buying a house but as your income increases, these costs are fixed so will seem less expensive as time passes. This begs the questions

Should I go for basic mortgage protection now and put income protection in place in the future when I’ve settled in and am used to paying the mortgage?

I’m sorry but…

You see, you may have the best intentions of coming back and putting income protection in place but you won’t.

NOBODY has ever jumped out of bed one morning going “Today’s the day I’m gonna get me some income protection”.

It’s never happened and it never will.

You get three chances to sort this stuff out:

  1. When you’re getting a mortgage
  2. When you’re having a baby
  3. When you’re changing jobs

The only other time people come to me for income protection is when they have found a lump, are feeling stressed at work or have a headache that just won’t shift.

Unfortunately at that stage, it’s too late.

How does income protection work when using it for a mortgage?

The beauty of income protection is in the simplicity of how it works.

If you can’t do your job, I stress your job, not any job, for longer than your deferred period, the insurer will pay you a replacement income that you can use to pay the mortgage.

You will continue to get a payout until you get back to work or until the end date of your policy.

So yes, it covers ANY illness or accident that stops you from doing YOUR JOB.

To claim, you’ll need sign off from your GP of course.

Unlike serious illness cover, which we’ll discuss below, income protection pays out for stress, anxiety, depression or any other recognised mental health issue that stops you doing your job. It also covers neck pain, backache and, (fancy word alert) musculoskeletal injuries that prevent you from carrying out your work duties. Of course, the big bad ones like cancer, heart attack and stroke are also covered as long as they stop you working.

We have a client who developed rosacea (a non-life-threatening skin condition) who claimed successfully.

The caveat is that pre-existing conditions are excluded. So if you have a dodgy right knee that been giving you some grief over the last few years, you’ll probably get a right knee exclusion. This means if you can’t work due to pain in your right knee, you can’t claim. If the insurer adds an exclusion to your policy, you’ll know about it before you sign-up. It’s not like they can exclude out of the blue when you make a claim.

And on top of the icing on top of the cherry on top of the cake – you get tax relief on your premiums. So let’s say your premiums are €100 per month, after-tax relief, you’ll only pay €60 if you’re a higher rate taxpayer.

4 insurers offer income protection

  1. Aviva (recommended)
  2. Royal London
  3. New Ireland
  4. Irish Life

Here’s how to compare the Irish income protection providers

What about income protection if I don’t work in an office?

The cost of income protection depends on what risk class your occupation falls into.

The classes rank from 1 to 4. The insurers rank occupations based on their history of claims and the risk of injury in that occupation.

Class 1 is your standard desk jockey. Me, for example.

Class 2 is an occupation that involves some light manual labour – a dentist fits in here, as does a sales assistant.

Class 3, then, involves non-manual and manual occupations. Nurses, midwives, mechanics – you get the gist.

Class 4 is manual labourers. This includes jobs like general operatives, builders, and tradesmen.

If you fall into Class 3 and Class 4, expect your premiums to be more expensive. However, Wage Protector is here to make things a bit easier on your póca:

Affordable Income Protection (AKA Wage Protector)

How can Serious Illness Cover save your home?

This will help you to clear a lump off your mortgage if you get one of the illness listed on your policy (types of cancer, heart attack stroke and 598 billion other rare illnesses that you probably won’t get). It’s more affordable than income protection but not as easy to claim on. You see it doesn’t cover absence from work due to mental or physical injuries.

But it is cheaper, especially if you add it to your mortgage protection insurance policy (you know, the one you have to take out, the one that pays your mortgage should you shuffle off unexpectedly). Generally, I advise against adding serious illness cover to mortgage protection as the bank gets the payout. But if you want to pay off of your mortgage should you fall ill, then it’s fine to consider mortgage protection with accelerated serious illness cover.

Claiming is straightforward; you contract an illness defined on your policy, the insurer pays a lump sum tax-free to your bank who pays down or clears your mortgage.

Again budget for it as part of the full cost of getting a protected mortgage i.e Repayment + house insurance + mortgage protection + serious illness cover. Like income protection, it’s a fixed cost going forward so as your wage increases, it will bite less, but if the poop hits the fan, you will be so relieved that you have a cover.

If you can’t get either income protection or serious illness cover due to your occupation or health, then you can look at cancer only cover. Cancer accounts for around 80% of all serious illness claims, so cancer only cover is definitely worth considering.

Should you get cancer, the policy pays out a tax-free lump sum. Cancer only cover isn’t available on the bank’s mortgage protection policies. You can only buy it through brokers on a separate life insurance policy. Therefore any claim on the policy will go to you giving you the option of whether you want to pay down your mortgage, use it for medical bills or who knows, hire a yacht and spend your final years on earth drinking mai tais while sailing into the sunset. Cancer cover costs about 20% less than full serious illness cover.

What the hell is Multi Claim Protection Cover?

I’m glad you asked.

It’s the new kid on the block and deserves its own blog which you can read here.

Over to you

mortgage income protection

I know there’s a bit there to chew on.

If you’d like me to take a look at your personal situation and make a no-obligation recommendation over email,  please complete this questionnaire.

Best of luck with the whole house buying process. I remember how stressful it was.

You’ll get there eventually!

Nick | 05793 20836 | nick @ lion dot ie

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