In my previous article, Protection Insurance: How does life cover work and is it a good idea? we shone a spotlight on Life Insurance and the importance of this kind of cover.
Closely related to this is critical illness cover which is a slightly more complex policy – but don’t worry, this article will be easy to digest!
Bear in mind that while you don’t need to have a critical illness policy in place when you take out a mortgage, it’s really important to consider how you might pay your mortgage if you became ill and couldn’t work.
Critical illness cover can offer a lump sum on diagnosis of a specified illness or medical condition. Policyholders can use it to pay off their mortgage, help with bills and day-to-day expenses or to fund medical care.
All providers have different conditions and severities they will pay out on. However, ‘critical illnesses’ cover a range of conditions, most including cancer, heart attack, stroke and multiple sclerosis.
From a cost perspective, critical illness cover tends to be the most expensive – but having any amount is better than none at all, and thankfully there are options to suit all budgets.
What types of critical illness cover are available?
When taking out a mortgage, you have an option of taking critical illness cover on an increasing, decreasing or level term basis:
Level term cover
The value or sum assured of your policy remains the same throughout the term of the cover. This can be useful when looking to ensure your mortgage is repaid but can also leave a surplus which can be used for other expenses, such as medical care.
Decreasing term cover
The policy will ‘track’ your mortgage and pay an amount that will decrease as time goes on. There is an interest rate buffer on this policy designed to ensure you always have enough to cover the mortgage, but realistically no shortfall for other expenses.
Increasing term cover
The same as decreasing but the opposite way, meaning your policy value will increase and leave more surplus than your mortgage to pay for other expenses.
So, do you need critical illness cover?
Here are some things to mull over…
We are surviving more complex illnesses
Critical illness cover is designed to be a living benefit, to help get you back on your feet again after illness strikes. We are surviving complex conditions more and more – and this doesn’t just affect your health, it can drastically impact your finances, too.
It can provide additional support
It’s not just time off work, either. Costs may include childcare during treatment, adaptations to your home and higher heating bills while you spend time at home recuperating.
State benefits and sick pay may not be sufficient
You might still have income coming in while you’re ill such as state benefits or sick pay from your employer. You may also have an income protection policy.
However, this may not cover all your needs. It’s a good idea to think about how much you would need to live on if you became seriously ill.
Like life cover, you should consider what benefits your employer pays out if you can’t work because of ill health or disability and whether you have savings you can use instead of insurance.
It can cover mortgage repayments
Unlike life cover, if you’re a sole applicant and have no partner or family, it is important to consider how you would pay your mortgage if you became seriously ill. Taking out critical illness cover could alleviate much of that stress.
A few other things to consider…
-
- Most providers will allow you to add children’s critical illness cover to the policy, which can help any children now or in the future.
- Like all protection products, a provider will take many factors into account, such as your health and smoker status. This will determine costs and any conditions excluded from the cover (this can be due to risk or pre-existing condition).
- You can take critical illness cover as part of a life cover policy, which can work out cheaper than two separate policies.
- All insurance providers are different and offer different add-ons and benefits.
Finally, remember that navigating protection is a challenging thing to do, and mortgage and protection brokers are here to help you through that process.
They’ll work with you to review your circumstances and ensure you are protected, should the worst happen.
Darren Polson is head of mortgage operations at Aberdein Considine
