Mortgage Protection is one of the more complex types of cover in the marketplace as there are many optional extras and variables that can affect your premiums such as; payment periods and benefit wait periods and even the option to have your benefit increase with inflation. As a general rule of thumb, the longer the benefit and wait period, the less your premium will be.

The wait period associated with mortgage protection is the amount of time that you will need to ‘wait’ until you receive money from your insurer should you make a claim and is one of the main variables which will affect your premium. Generally, a wait period can range anywhere from four weeks all the way up to two years. However, the most common recommended wait periods are four weeks, eight weeks and twelve weeks.

Let’s look at an example to give an idea of the cost of Mortgage Protection and to demonstrate how the wait period can affect your premium.

Example 1: John, a 35 year old male with a relatively low risk, office job is wanting to cover himself for $4,000 per month. He would like to have a benefit period to age 65 just in case he falls ill or has an accident which leaves him unable to ever work again.

$4,000pm

4 week wait

$4,000pm

8 week wait

$4,000pm

13 week wait

Monthly Premium*$10.3.15$81.27$54.74

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* Based on the average premium of the top 5 insurers in the marketplace

As the above demonstrates, the longer your selected wait period, the cheaper the premium. However, with insurance it is not always about finding the best price, rather it is about finding the right cover as the wait period and benefit period you select could be the difference between financially surviving or financially struggling.

When selecting the wait period for your income protection, it is important to consider the following factors:

  • How much sick leave and annual leave do you have owing?
  • Do you have any savings that you can access until you receive a payment from the insurer?
  • Can you potentially rely on your partner’s income for a period of time?
  • How long will your bank allow you to delay your mortgage repayments?

In regard to the benefit period associated with your income protection, this determines how long you could potentially claim a monthly benefit from your insurer and is also one of the main variables which affects the cost of your cover. In general, your benefit payment options range from one year all the way up until age 70.

Let’s look at another example to give an idea of how the benefit period can affect your premium.

Example 2: Sarah, a 40 year old female is a Doctor and is wanting to cover herself for $6,000 per month. As she has savings she is happy to have a 13 week wait period, but would like to know her premium options across different payment periods.

$6,000pm

2 year benefit

$6,000pm

5 year benefit

$6,000pm

Benefit to age 65

Monthly Premium*$75.08$93.67$131.15

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* Based on the average premium of the top 5 insurers in the marketplace

When selecting the benefit payment period for your mortgage protection it is important to think about how long it may take you to financially adjust to a situation where you are unable to return to work in the longer term. Perhaps you are close to retirement age and you would survive financially if you had a shorter benefit payment period? Or you may be in your thirties and being unable to work for the next thirty years could have a significant financial impact on not just yourself, but also your family.

As the above outlines, it really is a balancing act to selecting the right benefit period, and once you combine this with a wait period, it can seem like your premium options are endless. However, an experienced adviser can help you decide what wait period and benefit period combinations may be best for your mortgage protection policy all the while taking your budget into consideration.