Income protection insurance explained

The term income protection insurance can refer to a number of different products, which often leaves consumers feeling confused. To help customers understand the different products within this sector, specialist liability insurance provider Towergate Professional Risks has explained the different policies often described as income protection.

PPI

Payment protection insurance (PPI) is a short term insurance that provides a portion of the customer's monthly income if they are unable to work due to accident, illness or redundancy. It will not usually replace the whole income, but policyholders insure a percentage of it to help them cover their commitments.

Benefits are normally paid out for a maximum period of 12-24 months, although they stop if the customer goes back to work.

Income protection

This is similar to PPI in terms of the way it makes payouts, but it differs in two key areas. Firstly, redundancy is rarely covered; the point of income protection insurance is to cover people who become unable to work due to incapacity. And secondly, the payouts can last for much longer - up to retirement age in many cases.

But, says Towergate Professional Risks, the premiums are usually higher for this product, as the total payouts could be much larger.

MPPI

Mortgage payment protection insurance (MPPI) is designed to protect homeowners from losing their properties if they lose their jobs. The policy will cover the monthly mortgage payment, although with some insurers other commitments such as insurance premiums can also be protected.

The monthly premium is usually worked out as x per £100 of mortgage repayment. So if your mortgage is £500 a month, and the insurer charges £5 per £100, then your premium comes to £25 a month. When you take out a mortgage, your lender will usually offer you this product, but in many cases consumers can find alternative - and often cheaper - cover independently.

Loan payment insurance

This is similar to MPPI and often priced in the same way, except that it is designed to help pay the interest on credit card balances or personal loans. In some cases, the insurance is sold with the loan, and there have been some complaints about mis-selling practices in the industry. However, it is possible to buy this insurance from an independent provider.