New Zealand Mortgage Protection Insurance Explained (vs Income Protection)

Host Joel Sadler interviews assurance expert Travis Hamilton, a financial advisor specializing in health and insurance risk with 15 years’ experience and country chair for the Million Dollar Round Table, about mortgage protection. 

Travis explains that mortgage protection provides a monthly payment if you can’t work due to sickness, illness, accident, or injury, and it’s based on a percentage of income (up to 45%)—you don’t need a mortgage to hold it. 

He compares it with income protection, noting mortgage protection can be more generous because it may pay on top of ACC in accident scenarios, and advisors often combine mortgage and income protection to reach up to 75% of income (not 100%). 

They discuss that banks don’t legally require this cover, but clients are guided through scenarios to decide what they want, including how life insurance and trauma cover can protect families and mortgage obligations. 

Travis shares examples of current claims (mental health/stress leave, lower back pain, carpal tunnel, chronic bowel condition) and outlines key policy settings such as benefit periods (2 or 5 years up to age 65/70) and waiting periods (1–3 months), with cost trade-offs. 

The episode closes with advice to make an informed decision by considering how long you could last without income, and how to contact Travis via Advanced Mortgage Solutions; consultations are typically fee-free, with remuneration via disclosed commissions if a policy proceeds.

To book a Free meeting with Travis please visit: https://www.advancedmortgagesolutions.co.nz/contact/

00:00 Welcome to the Podcast + Meet Travis Hamilton
00:55 Mortgage Protection 101: What It Is and What It Covers
02:29 How Much Can You Cover? Income % Limits + ACC Top-Ups
04:22 Mortgage Protection vs Income Protection (and Why You Might Combine Them)
07:03 Is It Required by the Bank? Common Misconceptions + Needs-Based Advice
10:23 Real-Life Framing: Your Income Is Your Biggest Asset
12:45 Claims in the Real World: Mental Health, Back Pain, Stress Leave & More
13:59 Choosing Your Settings: Benefit Periods, Waiting Periods & Cost Trade-Offs
16:49 Final Tips + How to Contact Travis (Fees, Commissions & Transparency)

For assistance with a new or existing home loan, reach out to Advanced Mortgage Solutions today. www.advancedmortgagesolutions.co.nz 

Transcript

SPEAKER_00 0:06

Hey, hi everyone, welcome back to the Advanced Mortgage and Insurance Solutions podcast. This podcast assists people with their property journey. Whether you're a first-home buyer or a seasoned investor, we cover all topics. I'm Joel Stedler and our insurance expert today is Travis Hamilton, who works closely with Scott and the team from Advanced Mortgage Solutions. G'day Travis. Welcome. So Travis is a financial advisor specialising in the health and insurance risk base. He's been in the industry for 15 years and is the country chair for a global financial advice organization called the Million Dollar Round Table. Now it's an interesting name, but it really focuses it on assisting the top financial advisors from each country, becoming the best they can when servicing their clients and delivering advice to their clients. In today's episode, we discuss mortgage protection. What is it? How does it work? And how is it different to other types of insurances? So look, Travis, do you want to kick us off by explaining what is mortgage insurance and how does it work?

SPEAKER_01 1:10

So mortgage protection is a product basically designed to, if you're unable to work, to be able to be able to cover your mortgage. So if you're unable to work due to any reason around your house, sickness, illness, accident, injury, um, it will provide you a monthly pay management. And you can use that for your living cost, put towards your mortgage, etc. Um one of the common misconceptions around it is you actually need a mortgage to have it, which would make sense given the name, but it's actually based on a percentage of your income that you can cover. So whether or not you've got a mortgage or not, uh it will provide you a monthly payment and you can use that for living. And if you've got a mortgage, obviously that can help you with three payments as well.

SPEAKER_00 1:54

Oh, interesting. I didn't know that. When I think of that, it makes sense for me with a mortgage because I know what my monthly payment is. So I imagine I'd come to you and say, look, Travis, I'm paying, you know, I don't know, let's just say 1500 bucks a month. I need to be able to cover that. Um, you know, if something happens to me, would that be the first kind of port of call that someone would ask you and to to get moving forward?

SPEAKER_01 2:16

One of the main questions we ask clients around that. We say, if you're unable to work due to sickness, illness, accident, injury, how long could you last without an income and what would you need? And mortgages is obviously a big component of that. Um you can actually cover up to 45% of your income if you're unable to work through mortgage protection. Um, very similar to the uh another product called income protection, which is the same concept, but where they differ is mortgage protection uh is a bit more generous where it doesn't have what they call offsets for things like ACC, for example. So if someone has an accident and they're eligible for ACC and they'll be receiving 80% of their income under that scenario, then mortgage protection will pay on top. So it's quite a good product in that regard. But if it's not an accident, like most people are off work, not always accident, it could be a sickness, illness, um, then it's just the mortgage or income protection that they're relying on. Yeah, so it's kind of hard to weave together.

SPEAKER_00 3:12

Interesting. It's cool. So it's really designed, as you said, to take the pressure off per se, in terms of, you know, obviously it can't cover the full amount by the sound of it, but it's there to help top up and support people through that recovery period.

SPEAKER_01 3:25

Well, at the end, one of the main things that when we talk to clients, a common answer that comes up is especially if they've just taken out a home, for example, or a new mortgage, um, they're often in a you know in a high debt scenario where they've got a lot of responsibilities, etc. And we say, you know, if you went off work, you know, what would what would you want to have happen? Um and they normally figure out their own answer on that, but it's normally something like, oh, we we you know we couldn't allow, you know, we wouldn't be able to continue to make our mortgage repayments, or we couldn't be able to pay our bills, or so on and so forth. And um, they kind of identify that that would be a problem. So then then then we'd look around what what what what are the best options in that cover it through mortgage protection as an example.

SPEAKER_00 4:05

Yeah. Yeah. Brilliant. So it almost sounds to me like what I've known as loss of income insurance. Would it be fair to say it's a similar thing or the same thing?

SPEAKER_01 4:15

Absolutely. Because um the fact that it's based on a percentage of your income, not actually on your mortgage. You can actually just choose to cover it for the amount of your mortgage if you've got, but um uh it's actually, you know, you don't just to have it, you don't just have to have the amount of your mortgage because there are other costs as well. So um so it's often called other things like you know, disability insurance or we just call it mortgage income protection. Um, and we just combine it. Most advisors that you we meet um use a combination of mortgage and income protection together. And yeah, why you'd use them separately is uh mortgage protection only covers your 45% of your income, which is not always uh adequate for people to live on. So we combine it with income protection to give them the best coverage possible. Is it's kind of um yeah, the kind of the most common approach, I would say.

SPEAKER_00 5:09

It makes sense. So if someone did say want um to have the option of a hundred percent cover each month, then they could work through that with you and have that hybrid model to achieve that.

SPEAKER_01 5:22

It's probably good to clarify that you can't you can't actually cover a hundred percent of your income uh with any of the with any of the providers. And I guess maybe there's a because there'll be you know lack of incentive to get back to work, although that would be great. You can cover up to 75% of your income through income and mortgage protection combined. So um we try to get as close as we can to that number, but you can never actually quite fully cover the whole income if you're off work.

SPEAKER_00 5:48

Yeah. Oh, that makes sense, and yeah, that incentive to get back to work makes a lot of sense as well. Yeah, if you can relax too much on 100% cover. Yeah.

SPEAKER_01 5:59

There's actually a lot of uh studies that actually identify that people are actually better off uh if they are able to work and going back to work, whether it's around their physical and mental health as well. So we do find that most people would prefer to be at work than not work. Um, but you need to know that it's gonna protect you if you can't work, right? And um and because it's private cover, you know, you're not um you're not forced to go back to work prior to being ready, right? Because that's why you pay for the insurance sort of thing. So, you know, you can have full face that sometimes with uh, you know, whether it's ACC or the public um sector, you know, they they would like you to return to work in a faster time frame, but um, you know, when you're ready and able, then then that's how long it will cover you for, so to speak, when you're off.

SPEAKER_00 6:44

Yeah. Yeah, that makes sense. Okay. And and look, um, do you find obviously working closely with Scott and uh sometimes life insurance comes up, which I understand life insurance is if someone passes on, there's a lump sum left available to say cover the mortgage. We can come back to that in a minute. But do you ever find any scenarios where um loss of income insurance or mortgage protection insurance is required by banks when people are lending at all? Or is it more just a uh recommended um protection element?

unknown 7:19

Yeah.

SPEAKER_01 7:20

Wait, because it's uh it's not actually legally required to have the the cover. It's implied that it's important. Um sometimes there's a misconception that some people might come and go, I believe I need to have this to get the mortgage and so on and so forth. And I'm really big at saying to um saying to clients, look, it don't worry about it's not what the bank thinks, it's not what the insurer thinks, it's not even what a financial advisor says you you you need. It's really about I always bring it back to go, it's whether or not you would need that or want that. So we take them through the scenario, go, what would you want to have happen? And and using the example you said about the life cover, if if something were to happen to either of the clients, um, might pass away prematurely or diagnose with a terminal illness, what would you want to have to happen in that scenario? And you know, every but quite often the places they might go, Hey, well, I would want I wouldn't want to leave, you know, the debt to my spouse to cover, you know, I would I wouldn't want to have that burden with them, or if I was sick, I wouldn't want to be able to lose the house because we couldn't have an income to make our repayments. So therefore, yeah, that is an important option to look at. And can we look at those scenarios? You can you're kind of guided by the client because it's really down to what they want and need. And I think our role as an advisor is to help provide the options or scenarios to help them make their own decisions and we can just kind of guide them through that. Um, but ultimately, most people are in a position where they do need it. Um, but it's best if they they believe that themselves rather than that they're told that or required they have to, which is not the case.

SPEAKER_00 8:50

Yeah, yeah, that's really smart. So I have uh life insurance and then the trauma insurance as well. And and the main driving factor for myself was as you just said, you know, I don't want to leave my wife if I've died, you know, say tomorrow, get hit by a bus or whatever. I don't want to leave her with a mortgage that she has to all of a sudden try and pay, you know. And I know banks have a certain m element of grace, but I'm, you know, in our relationship, I'm the main breadwinner. And that would be sort of throwing her under the bus, really, trying to afford she'd probably have to sell, you know. So it's nice and reassuring for me to know that you know there's a lump sum there that's going to cover the mortgage and help her sort of move transition into whatever she's gonna do or she would do, not was, is gonna, but you know, whatever she might have to do, um, you know, to keep her and the kids looked after. And I think you're right. And I I I've I think sometimes um not everyone has the ability to think through those things. So I think it's really powerful meeting someone like yourself to help actually paint those scenarios and go, look, you know, we hope this is never gonna happen, but what if A B C D F happened? You know, and then do you often see clients sort of the the penny kind of drop for want of a better word that they may have never even considered some of these things before? Absolutely.

SPEAKER_01 10:04

And it and I think the biggest part of it, it's really it is that the peace of mind, right? That's the main thing because it's it's kind of a um, you know, with you if you insure your house or your car, you can touch it, right? You can see it. Um you're basically you're insuring something that's intangible on a promise that they're going to look after you if if or you require it. So there's a bit of a you know uh a leg of faith in that regard. And um I always say to people, you know, like uh it's people often think, you know, ask them what's their biggest asset, and they might say it's the house that they've just taken out, but it's actually their health or their ability to earn an income to provide that ongoing income, which ends up to being a bigger number than the value of their house over the long term. So when people actually work that out, and why they're so we're also quick to all of us as self-appoint, you know, ensure the car or or the contents, um, yeah, but not themselves, which is their biggest asset and their at their ongoing income. Um, you know, it's just kind of a switch of framing. And so a lot of people say, you know, I wasn't, I didn't know that some of these options were available, or what about ACC? Can I not just rely on that? Um the people that aren't aware that it's just for accident only, um, not your long-term sickness, illness, you know, whether it's physical illness or mental illness as well. There's a big claim now, it's um, you know, in levels of anxiety and stress and uh, you know, people and self-employed people, for example. Um, you know, those things can can I just rely on the public sector? And they may on they can as well. It's not to say that you can't do that. It's just going, hey, this is what the public does, this is what private does. Some people think this, some people think that, where are you on that scale? And and and it's not necessarily for everyone. Like an example could be I could have a 28-year-old male or female on their own, brought their own house, um, no, no partner, no kids, and they said, Hey, if something happened to me, if I was to pass away, um, I guess the house would sell and uh the equity would clear the debt, and there's nothing really that's not that important to me. But what is important is if I can't work to be able to pay, be able to pay my mortgage, and that's your mortgage and income protection that we're referring to. So there's um there's no right or wrong, I always say to people it's a it's um, you know, there's there's a whole spectrum or or you know, or level of different scenarios, and it's got to be unique and tailored to everyone's individual needs and requirements, and I think it's our job to help them figure that out.

SPEAKER_00 12:24

Yeah, yeah, brilliant. And you know, tell us um are there any recent examples where that you could share, obviously, you know, names redacted and all that around where you've seen a client or assisted a client with that mortgage protection element?

SPEAKER_01 12:42

I'd I'd say we've probably got just looking at the office, um probably three or four cases on the go at the moment, actually. Um we've had mental health, as as I mentioned before, is is is one that we see a bit, um, and that's a growing uh globally growing sort of trend. Um a lot of them fall under musculoskeletal, which basically basically means something physical, whether it's muscles, joints, bones. Um we uh in terms of we've got someone that's um on claim for um lower back pain at the moment, and the mortgage potentially helps top up what they can get from ACC. Um we've got a few that aren't eligible for ACC because it's not an accident. Um, and they're on the mortgage and income protection combo as well. Uh just thinking of a of a recent example, we've had anyone from carpal tunnel syndrome at the moment to uh stress leave uh to uh a chronic bowel condition with another client. So Yeah, and you know, and it pays you, it's interesting to see how long it pays you for, right? So as I mentioned, it pays you until you go back to work, but there's kind of some different options because it's got to be affordable and fit within a budget. So there's no point having it otherwise because people might not retain it. So um, you know, it can pay you all the way to through to age 65 or 70, which is you know retirement age for a lot of people, or you can have a shorter period where it only pays you for a five-year period if you're off work or two years. They're the main options. Um now the shorter the benefit period, the cheaper or more affordable to cover. So it's better to have something than nothing. Um you might think, well, if I'm 30 years old, I've got a two-year benefit period. That would only call me three to thirty-two compared to sixty-five. You know, I've got a big gap there, which is which is true. But most claims, um, the majority of people are back to work between, you know, uh two to five years. Some providers, the average claims are about a year. So most of the time you will actually fit within that frame timeline anyway, and it won't impact you. But if that's the that's the the trade-off you make, right? If you are off work longer than two or five years, chances are it's a long-term claim and that you know it's just a trade-off with cost like anything, right? And it's um yeah, everyone make has to we all we all have to trade things off to fit within a budget and be affordable, right? But um, yeah, you just help people work that out, you know.

SPEAKER_00 15:02

Yeah. Yeah, that's great. That was going to be one of my questions is does it cover a short period or a long period? And you've answered that beautifully. So the way, just reflecting that back, you have the option, a cheaper level, sort of that the shorter two to five year period, uh sorry, one to two year period, or you can go the whole whole up to say 65, for example, and obviously you're paying a lot more because it's a longer protection time period, yeah.

SPEAKER_01 15:26

And part of the round that is you can pick how quickly it kicks in as well. It's called the waiting period, how long before it kicks in. And there is a vast array of different options, but generally um the the one month, two months or three month before it kicks in are the options. And um they have a significant difference, like a a three-month wait. So that's obviously for something a bit more long term, you know, like a bit more serious. That's about half the premium though of someone on a one-month wait. And that can be a significant saving for people, right? So um you just help people work out the weight benefit period options and and show them how in a table how that affects things, and then you know, they they can arrive at something that they're comfortable with from that.

SPEAKER_00 16:09

Yeah, and look, that makes a sense that makes sense too. If some people have savings or they know that they've got a certain amount of runway, you know, in their belt or savings to carry them through, they might go for that, you know, that slower or that delayed um period, which makes sense, keeps the premium cheaper. Yeah, interesting. Yeah, brilliant. All right, Travis, it's been uh really interesting. Is are there any sort of final tips or points for our listeners that you'd make or recommend around mortgage protection if they're considering it?

unknown 16:38

Yeah.

SPEAKER_01 16:40

Probably a tip would be make an informed decision, regardless of whether or not you have it or not. Just don't um, you know, it's it's good to be aware so then you can decide whether or not it's relevant for for yourself. Um it's good to seek advice from a uh qualified financial advisor to help you guide um your decision making. But um ultimately, yeah, it at least be aware of the scenario. And probably the main question I ask people in that scenario, which is uh you can tell it's they haven't really given it um much thought previously, which is if you are unable to work as of today, if you went off work today, due to sickness, illness, injury, how long could you last without unincome? What would you want to have happen? And what would be the what would be the plan B? What would be the next step? And often they have to really think it through, and that's good because it means that they're digesting and and um what they'll do in that scenario and hopefully helping them just make an informed decision about what they would do. And that's probably the most important thing, and whether or not they take cover out or not, at least they're aware. So that would be where I'd start.

SPEAKER_00 17:44

Yeah, brilliant, brilliant. All right, thanks, Travis. Um, for our listeners, anyone that's uh wanting to get in touch with Travis, uh, you can go to www.advancmortgage solutions.co.nz. There's information there about insurance policies, including mortgage protection insurance. There's web forms you can get in touch with the team and reach out to Travis to uh book an appointment. Travis, um, just one thing I want to cover off is do you charge upfront fees for appointments?

SPEAKER_01 18:11

Um most survivors, myself included, we don't charge any fee for advice. Uh we have a uh disclosure that we give to clients and it says how we're remunerated. And um it's essentially very similar to the mortgage world where we get remunerated in the form of a commission if a uh client proceeds with the policy. Um we're non-aligned, so we deal with a lot of the main providers in the market, so we we um try to give you know full holistic uh advice in that space, you know, with comparing different options. But and if we do get, if and when we do get paid a commission, we disclose that uh level to the client. So there's just that level, you know, that transparency. But because that's how we get remunerated, it um it basically means we don't have to uh charge any fee for advice because we're compensated anyway. So hopefully it's a low low cost uh uh to advice for the clients in that space, which is great.

SPEAKER_00 19:05

Awesome. All right, Travis, thanks for your time today, and we'll see you on the next episode.

SPEAKER_01 19:09

Thanks, Charles. Thanks, Kevin.