- Victoria Slade
- Independent Protection Expert
Yes, it is possible to take out Critical Illness Cover on a decreasing term basis.
With this type of insurance your mortgage loan could be repaid if you were to suffer a serious illness or injury within the policy term but on a decreasing basis, which means the cover falls over time alongside your outstanding mortgage.
How Critical Illness Cover Works
A typical Critical Illness Insurance policy covers around 40 conditions, with the ‘big three’ claims being cancer, heart attacks and strokes.
However, there are policies which cover less than 10 illnesses and those which cover more than 100, so it pays to read the policy terms and conditions carefully.
With a decreasing term plan the level of cover would decline over time so that the amount insured should be just sufficient enough to repay the mortgage. Decreasing term cover is usually used to protect a principal repayment mortgage.
It is important to note that most decreasing term plans do not guarantee to repay the loan in full but rather the level cover declines based upon an assumed policy interest rate, usually of between 8 to 10 per cent.
This means that the plan would contain enough cover to repay the loan at all times provided that your mortgage interest rate does not go above 8 to 10 per cent (depending on the insurer).
Gaining cost effective cover
The most cost effective method of gaining cover is usually to take out Mortgage Life Cover with Critical Illness Insurance. In other words, it is usually cheaper to take out decreasing term insurance and add critical illness cover to the plan as an option.