Mortgage Life Insurance with Critical Illness Cover
Protecting your loved ones...
Including a level of critical illness insurance with your mortgage life cover is a very popular form of mortgage protection.
Life insurance and critical illness cover provides a lump sum to pay off the outstanding mortgage amount should you pass away or get diagnosed with a critical illness condition.
Where life insurance is fairly straight forward the quality of a critical illness policy can vary significantly from insurer to insurer.
It is very important to review each insurers terms and conditions in detail as they do not all cover the same serious illnesses and some require a greater severity of a condition than others to pay a claim.
What does Mortgage Life
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.
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.
How does Mortgage Life Cover work?
Protecting your mortgage...
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.
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.
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).
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.
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.
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).
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.
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.
For information relating to mortgage life insurance critical illness products please navigate to the website of the Financial Services Authority’s MoneyMadeClear. For general information and news relating to the insurance market please navigate to the website of the Association of British Insurers.
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