Critical Illness Cover
It is easy to see why Life cover is necessary alongside a mortgage however the importance of Critical Illness cover is often overlooked.
It is important to think about how you would maintain a general standard of living if you or a family member were diagnosed with a serious illness. Being diagnosed with a Critical Illness could mean never fully recovering drastically impacting the income and lifestyle of your household.
While an insurance policy will not make you or your family member better, it does help to reduce financial strain around this time allowing you and your family to maintain a general standard of living without the need to make too many changes to your lifestyle.
Critical Illness Cover gives you a tax free lump sum of money if you are diagnosed with a Critical Illness during the term of your policy. Built into most critical illness policies is a level of Children’s Critical Illness protection for no extra cost. This money can be used (for example) to:
- Pay off your mortgage loan or any other loans you may have
- Make modifications to your home to help you get around easier
- Pay for private care
- Accommodation for family members if you are being treated away from home
- A holiday with those who matter most
Unlike Life cover policies, there are many features to a Critical Illness policy that makes one better than the other. The main factor we take into account when recommending a provider for Critical Illness is the amount of conditions they provide protection for in their policy. The most comprehensive policies provide protection on around 48 conditions for full pay outs.
Comprehensive Critical Illness cover will also supply partial pay outs for conditions they feel are less severe but still deserving of some a percentage of the total sum assured.
The amount of conditions covered under a policy does have an impact on the premium however, this is not the only factor that increases or reduces a premium. Providers with a good claims history will usually charge a higher premium for their policy as you are getting a higher value policy and the peace of mind that in the event of needing the claim, the provider will pay out. We can work with you to find a comprehensive critical illness policy in line with the budget you are willing to contribute towards protection.
There are many different ways a Critical illness policy can be set up, we will assess your need for protection and recommend the best way to include Critical illness cover in your protection portfolio.
Basis of Critical Illness Cover
Decreasing Term Assurance: This type of cover is designed for repayment mortgages. The sum assured with this cover will reduce in line with you mortgage as you make repayments. The premium is calculated with the decrease in the mortgage balance accounted for and so premiums will remain level throughout the term of the cover. This is the cheapest form of Critical illness cover available however it is not suitable for an interest only mortgage. In the event of premature death it will repay the loan amount outstanding on your repayment mortgage.
Level Term Assurance: This type of cover is designed for interest only mortgages or where you simply require a fixed amount of cover that will not change. The sum assured for level term assurance will remain the same throughout the whole term of the policy. In the event of critical illness diagnosis, this will provide a lump sum equal to the sum assured at the outset.
Indexing Term Assurance: This type of life cover is designed to mitigate the effects of inflation. The sum assured for Indexed life cover will increase each year in line with the Retail Price Index and the premium for this policy will also increase each year to accommodate the increases. Indexing Term Assurance is often used in conjunction with a Family Income benefit policy as it is designed to replace lost income in the event of being diagnosed with a critical illness and therefore no longer being able to work.
Type of Critical Illness Cover
Family Income Benefit: This protection policy is designed to replace the lost income of a significant other or family member in the event of being diagnosed with a critical illness. Family Income benefit is paid as monthly income (tax free) which can be utilised to raise dependents and to help ease financial pressure of losing some of the household income. If the person responsible for dependents childcare becomes critically ill, a critical illness family income benefit policy can
Mortgage Protection: Critical Illness cover can be arranged with a sum assured to match your mortgage loan. In the event of your death, your mortgage can be repaid in full to allow your partner and/or dependants to remain living in the family home.
Life or earlier Critical Illness cover: It can be expensive to insure your whole mortgage loan against Life and Critical Illness separately therefore, there is an option to combine the two covers together. The full sum assured will be paid out either upon diagnosis of a critical illness or death whichever occurs first.
Most policies include additional benefits for no extra cost adding further value to a policy. These include things like:
- Child Cover
- Health lines
- Wellbeing lines
Alongside the benefits that are included for free, there are also options to add benefits in for a small cost:
- Fracture Cover
- Global Treatment Cover
- Total Permanent Disability Cover
Our advisors have full information on all of these benefits and will be able to discuss each option with you in depth if relevant to your circumstances. For example, fracture cover may be ideal for those often partaking in sports actives such as football.
As Critical Illness cover is more expensive than Life cover, often it is out of budget to protect the full mortgage loan against Critical Illness cover. There are options to create a multi benefit policy with two separate covers. The first being the Life cover to protect the full loan amount and the second would be the Critical illness cover with a sum assured suited to the remaining budget.
Providers often change the Critical Illness definitions that you are protected against so it is important to us to review your Critical illness contracts on a regular basis. This ensures that you still have the most comprehensive policy on the market so that in the event of a claim you are most likely to receive a pay-out.
FD Protect life insurance advisers will research and source the best provider of Critical Illness for the level of cover you require in line with your budget for protection, assist you through application, liaise with the insurance provider to gain acceptance and in the event of a claim we will provide the necessary support to ease stress during this time.
Our service goes beyond sourcing and applying, once your policy is on risk we will continue to review your contract on an annual basis to ensure you still have the most comprehensive policy available to you.
In the event of a claim we will take the responsibility out of your hands and deal with the whole claim for you so you can focus on getting better of helping a relative recover.
For more information, please contact Bristol insurance advisers at FD Protect – contact us.