The primary difference between mortgage protection insurance and income protection insurance is that mortgage protection insurance covers your home, while income protection insurance covers annual wages, which equals your standard of living.

Mortgage protection insurance is insurance protection that is taken out either as part of a mortgage or as a supplemental policy. It is designed to pay your mortgage even if you become disabled through illness, injury or if you become unemployed.

Income protection insurance is insurance protection that is taken out to help replace your income if you should become disabled through injury or illness. Income protection insurance does not normally pay a benefit for unemployment, though there are a limited number of policies that will pay if your job becomes redundant.

Again, the primary difference between the mortgage protection insurance and income protection insurance is that mortgage protection covers only your mortgage payment while income protection will replace up to 75% of your annual income. It is likely that if you were to become disabled then income protection insurance would pay you the greater amount as compared between the two policy types.

Choosing Between The Two Policy Types

If a consumer had to choose between which type of policy to purchase, than the choice may be Income protection insurance. The reason is that our income is usually our most valuable asset, and it is our income that allows us to pay our mortgage. Further, if the policy holder became disabled then income protection benefits would help them to pay not only the mortgage but to pay other expenses as well. Many people have both types of insurance if possible because income protection insurance only pays up to 75% of their annual income and not 100%. Already, they would be facing a 25% loss in income, but if they also had mortgage protection, then their largest expense would be paid and the loss of income would be offset by the payment of your their mortgage.

The benefit of mortgage protection insurance over income protection insurance is that mortgage protection insurance will pay your mortgage if you become unemployed or if your job is made redundant. Income protection rarely pays for loss of income if the reason for the lost income is unemployment and then it is only if the loss of employment is through redundancy. Some mortgages require that, as part of the mortgage, a mortgage protection policy be in place. If that is the case, then consumers often also consider the benefit of adding income protection insurance as a personal policy.

Income protection insurance is important because, without our income, we have very little to nothing. Income protection insurance can cover us for our working lifetime and help to replace lost income if we become disabled through illness or injury. Many consumers do not realize how much income we are capable of earning over the course of our working lifetime. To demonstrate that point lets look at what an average income would be over the course of a working lifetime. The average annual income in New Zealand is $47,900. For the sake of simplicity, lets bump that up to $48,000. The working lifetime of most adult is age 19 through age 65, which happens to be 46 years. $48,000 x 46 = $2,208,000. That is a lot of money. That is probably our greatest asset and, for that reason alone, it should be insured against loss. Without income protection and if disability should set in, the financial picture of our greatest asset becomes substantially less. This is why income protection insurance is important. Without income protection how do we pay our expenses? If we owned a piece of art that was valued at 2.2 million dollars, we would certainly insure it.

Looking out for our own financial well being is a chore but when taken responsibility for is often worth it in the end. If you are unsure where to start, it is usually a good idea to talk with a financial advisor before picking out an income protection plan anyways.

In closing out this article, keep in mind the difference between mortgage protection and income protection. Both are designed to help you when times are hard, but income protection will cover more of your expenses while mortgage protection will just cover your mortgage. Since our income is our greatest asset, it is important to look at how our lives would be impacted if we became disabled or unable to work.


(This article and all articles on this site are not to be taken as professional insurance advice and information may not be accurate, for insurance advice please speak to a registered insurance broker. We can connect you with a broker by using the form on this site.)

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