Why income protection matters when buying a home

It's not a comfortable question. But for the health profession, it's an important one. Long hours and physical demands are part of the job. So is the risk of injury or illness. Income protection helps you keep meeting your commitments if any of these stop you from working.

The risk doesn't change, but the stakes do

If this is your first home, you may have stretched your budget to get there. Lenders look at your ability to keep earning. A gap in income can affect your borrowing power and your repayments.

If you're moving to a bigger home, your mortgage is probably larger too. Plus, you may also have a family, school fees or even the day-to-day bills to think about. A break in pay can hit harder, not less.

Either way, your income is the foundation the whole plan sits on. Income protection helps protect that foundation.

What income protection actually does

Income protection insurance pays you a percentage of your income if illness or injury stops you from working. It helps cover everyday costs, including mortgage repayments, while you recover.

This matters at every stage of home ownership:

• Applying for a loan: lenders want to see reliable income. Income protection shows a safety net is in place.
• Settling in: the early years of a mortgage often have the least financial buffer. A policy helps cover this gap.
• Growing into your next home: as your mortgage and lifestyle costs grow, so does the value of protecting the income behind them.

Income protection isn’t the same as Lenders Mortgage Insurance

If your deposit is under 20%, your lender may ask you to obtain Lenders Mortgage Insurance (LMI). It’s a common point of confusion, but LMI and income protection do very different jobs.

LMI protects the lender, not you. If you default on your loan, LMI covers the bank’s losses. It doesn’t cover your repayments, and you don’t get the premium back if you refinance or pay off your loan early.

Income protection protects you. It pays you a percentage of your income if illness or injury stops you from working, helping you keep up your repayments and avoid default in the first place.

Both may come up when you’re arranging your first home loan. Only one is designed to protect you and your income.

Things to think about when choosing cover

There's no single policy that suits everyone. When comparing options, think about:

• Cover amount: how much of your income and expenses the policy should cover.
• Waiting period: how long you can manage before payments start.
• Benefit period: how long you'd need payments to continue.

The right settings depend on your savings and your family. They also depend on how far into your mortgage you are, whether you've just bought your first home or you're upgrading to your next one.