Why does income protection insurance matter while you’re saving for your first home?

Saving for your first home is a huge commitment, but one thing could derail your plans in an instant: losing your income. Martyn Johnstone, Independent Mortgage Adviser at ESPC Mortgages, explains how income protection insurance for first-time buyers could help.

Many first-time buyers saving for a deposit spend years building their savings. With rising property prices and many lenders requiring at least a 5% deposit, often aspiring homeowners don’t consider what happens to their savings plan if they become too ill or injured to work.

How does income protection insurance work?

While many employers offer sick pay or UK Statutory Sick Pay, it’s unlikely that they will cover costs, leaving your house deposit savings at risk.

However, income protection insurance pays out a regular monthly income if illness or injury means you’re unable to work. Unlike critical illness cover (which pays a lump sum for specific conditions), income protection provides ongoing support for a range of health issues.

The policy pays out until you’re well enough to return to work, meaning that you’ll receive financial support whether you’re off work for six months or six years.

Why is income protection important when saving for a first home?

While saving for your first home, income protection can keep your plans on track, helping you keep up with financial commitments, so your deposit is safeguarded and your credit score maintained.

Mostly, it’s peace of mind that you have a safety net should the worst happen.

As policies vary considerably, it’s important to speak to an adviser to understand what you’re buying and whether you’d be eligible (such as if you have pre-existing health conditions, which must be disclosed accurately to prevent claims being declined, as well as any income or state benefits you may receive which may impact your eligibility or the payouts available).

You should also remember that the policies have no cash-in/surrender value – meaning that if you cancel your income protection policy, you won’t receive any money back. The premiums paid are simply the cost of the protection during that period, and if you cancel or miss a payment, your cover stops immediately.

What does income protection insurance cover?

You should also note that policies don’t cover every reason for being unable to work. As with all insurance products, it’s essential you read the terms and conditions carefully and seek advice to ensure the cover you select is suited to your circumstances.

One reason many first-time buyers skip income protection is concern about the cost. Adding another expense while saving can feel counterproductive, but premiums can be surprisingly affordable, especially if you’re young and healthy.

Protect your finances while saving for your first home

The journey to buying your first home is challenging enough without adding unnecessary financial risk. While you focus on building your house deposit, make sure you're also creating a safety net that will keep your dreams intact, should life not go according to plan.

The initial consultation with an ESPC Mortgages adviser is free and without obligation. Thereafter, ESPC Mortgages charges for mortgage advice are usually £395 (£345 for first-time buyers). The Financial Conduct Authority does not regulate Buy to Let Mortgages. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR OTHER LOANS SECURED AGAINST IT.

The information contained within this website is subject to the UK regulatory regime and therefore restricted to consumers based in the UK.

The Financial Ombudsman Service is available to sort out individual complaints that clients and financial services businesses aren’t able to resolve themselves. To contact the Financial Ombudsman Service, please visit www.financial-ombudsman.org.uk.

ESPC (UK) Ltd is an Appointed Representative of Lyncombe Consultants Ltd which is authorised and regulated by the Financial Conduct Authority.