Mortgage Life Insurance with Critical Illness Cover

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Why Mortgage Life Insurance with Critical Illness Cover?

 

Life insurance pays out a tax free cash lump sum to pay off your mortgage should you pass away.

 

Include critical illness insurance to cover the mortgage should you suffer a serious illness such as cancer.

 

Provides you with peace of mind your loved ones will be financially safe should the worst happen.

What is it for?
 

What does Mortgage Life and Critical Illness cover?

Death

Should you die within the term of the policy this type of cover would payout a lump-sum that can be used repay the mortgage loan.

Terminal Illness

Leading life assurance policies can also payout early if you are diagnosed with less than 12 months to live by a medical practitioner.

Critical Illness Cover

This option also enables the plan to payout if you were to suffer any one of around 35 to 40 conditions named in the policy terms.

What does it cover?
 

How does Mortgage Life Cover work?

Stage 1:
You pass away during the policy term (set equal to your mortgage length).

Stage 2:
Your family make a claim with the insurer (including your death certificate).

Stage 3:
The insurer pays the sum assured either into trust or directly to a joint policyholder.

Stage 4:
Those life insurance funds can then be used to repay the mortgage loan in full.

How does it work?
 

Do I need Life and Critical Illness Insurance?

Although mortgage life assurance is not compulsory it is worth considering this plan if your family would struggle to keep up with the loan repayments if you passed away.

What is the risk of passing away?

Based on ONS life expectancy data (2008-10), someone with a 25 year mortgage term would have the following chances of passing away before the loan is repaid:

25 years old

35 years old

45 years old

1 in 33

1 in 15

1 in 6

As the chances of suffering a critical illness is far higher than death it definitely makes sense to consider adding this option to your policy.

Do I need cover?
 

Your Key Options

Choose your level of cover

This is usually set equal to the amount of debt still outstanding on the mortgage so the loan can be cleared in full should you pass away.

Choose your length of cover

This is often set equal to the length of time the loan has left to run so repayment can be made if you die at any point during the mortgage.

Include critical illness cover

This is an option that can be added to your life insurance policy so the mortgage can be repaid should you suffer a critical illness condition.

What are my options?
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Victoria had excellent on the spot knowledge and vast experience in my line of work. Even where she didn't know, she was able and willing to promptly clarify with colleagues and insurers.

Risheka Walls
26/07/2017

Combining life insurance and critical illness cover

Although taken out as one single plan, the policy essentially consists of two elements: mortgage life insurance and mortgage critical illness cover. Under the combined policy your home loan would be protected from the risk of both death and serious illness or injury.

The policy would payout a (usually) tax-free lump sum upon the first event of either death or suffering a critical illness condition specified in the policy document, before then terminating. In other words, if the sum assured on the mortgage life and critical illness sides of the plan are set equal at the start of the plan the policy would payout once for either event.

What does critical illness insurance cover?

Reputable policies will include cover for over 35 critical illness conditions, such as cancer, stroke and heart attack. Plans also typically cover diseases such as Alzheimer’s and Parkinson’s as well as physical injuries like paralysis/paraplegia and loss of limbs. Essentially, if you were to suffer any one of the 35 or more serious illnesses or injuries listed in your policy the plan would payout a lump-sum to repay your mortgage.

Any payout from the critical illness component of the policy will always be tax-free and is paid directly to you. If the policy is written into trust then any payout from the life insurance side of the policy will also be tax-free (with joint plans the policy with automatically payout tax-free to the remaining partner).

Level or decreasing cover?

Whether you have an interest-only or a principal/capital repayment loan you are able to take out mortgage life cover with critical illness to protect that loan against the risk of passing away or suffering serious illness or injury.

For a repayment loan the most appropriate policy would be decreasing term insurance with critical illness. With this type of policy the level of cover for both the life and critical illness sides of the policy would decline in line with the amount outstanding on your home loan.

Essentially, the amount of cover remaining on the mortgage life insurance and critical illness plan should be enough to cover the loan amount outstanding provided that your mortgage interest rate doesn’t go above the maximum allowable on the policy, which is usually automatically set at 8 to 10 per cent.

For an interest only home loan the most appropriate policy would be level term insurance and critical illness. With this type of policy the level of cover would remain constant for both the life cover and critical illness components of the policy. Provided the level of cover under the policy are set equal to the amount outstanding on your mortgage it means your home loan would be completely covered.

Joint policy for you and your partner

If you have a joint mortgage loan then it is perfectly acceptable to take out a joint mortgage life insurance with critical illness policy. The joint policy would payout on first event, so if either yourself or your partner were to pass away or suffer a serious illness or injury the policy would payout in full and then terminate. Joint policies can be taken out for both level and decreasing term plans.

Protecting your monthly mortgage repayments

Mortgage life and critical illness insurance provides a completely different form of protection from the mortgage payment protection insurance (MPPI) policies many people consider when looking to protect their loan. MPPI is a different type of policy, providing short-term protection for accident, sickness and unemployment by paying out a monthly benefit to cover your mortgage repayments for up to 24 months (most plans provide only 12 month of cover).

Do I need advice?

If you would like some more information, advice or simply want to compare mortgage insurance quotes from the leading insurers, please do not hesitate to get in touch, we are here to help just pop us a call on 0208 432 7333.

If you would like to compare quotes from the market leading mortgage protection insurers please simply click ‘Get Quote’ at the head of this page and select either level or decreasing cover with critical illness included.

Life Expectancy Calculator

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Our Mission at Drewberry™

To provide expert financial advice and deliver a passionate 5-star service to help educate our clients so they can make informed decisions.

To help individuals and businesses throughout the UK to plan their financial future whilst protecting them against the financial risks they may face.

To provide quality financial advice in a transparent, friendly and professional manner.

Frequently Asked Mortgage Protection Insurance Questions

 
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