Life, Critical illness and Income Protection Insurances explained.
Here Ben explains what you need to know about the protection products you should be considering if you have a mortgage.
A guide to Life and Critical Illness Cover
When you buy a new house it is a very exciting time. You know you can afford your new mortgage, you set up your new bills, and start getting settled in. But do you have a back-up plan if something goes wrong?
According to the Association of British Insurers, every year one million workers in the UK unexpectedly find themselves unable to work because of injury or illness.
It is important to put a back-up plan in place. If you suddenly suffer with an illness, or something more fatal, can your loved ones carry on paying the bills without you?
There are some insurance options to consider. Here is our guide to what you need to know.
Critical Illness Cover
This is a long-term policy that gives a tax-free, one-off lump sum payment should you suffer a serious illness. Once you receive the payment, the policy stops. Depending on the level of cover this could pay off your mortgage.
These type of policies pay out on most forms of cancer, severe heart attacks, strokes etc. Legal and General have 64 definitions of critical illness even on their standard policy and 87 on their extra policy.
Each policy is different and vary in terms of what they do and don’t cover so plenty of care needs to be taken to read the key facts from the provider.
If you have a partner, savings or employee benefit scheme to fall back on in times of difficulty, then you may feel you don’t need this cover. However, if you don’t have the luxury of a contingency plan then critical illness cover is something you should consider.
Thinking of a worse case scenario – would your partner have to give up work to look after you if you did come down with a major illness? If this was to happen then eventually after both of your employers have finished their period of sick pay there would be no income and a mortgage to pay if you do not have any protection in place.
As a Mortgage Advisor I have to see that there is some kind of plan in place should the worse happen, that mortgage payment is priority and the Financial Conduct Authority are encouraging advisors to have these conversations with their clients.
The cost of the cover will depend on your age, health, job and whether you have ever been a smoker.
Life Insurance
Life insurance pays out a lump sum to your loved ones if you die, giving everyone assurance that the mortgage payments and bills will be taken care of.
At the very minimum if you have a mortgage, children and members of your family who rely on your income to cover the bills then you should put some basic Life Insurance in place.
You can reduce the cost of critical illness cover by buying it alongside life insurance.
Income Protection Insurance
As well as critical illness cover that gives a one-off payment, income protection may also be an important consideration. Remember the worse case scenario we talked about earlier? Great, you have Critical illness Cover in place to pay off your mortgage but what about an ongoing income when your works sick pay runs out?
Claims are assessed on whether you can work or not due to illness or injury. If you can’t then the policy replaces up to 60% of your income until you can again – then it stops.
Whichever insurance policy you opt for, make sure all the information you submit is accurate. Claims are often refused on the basis that not all health information was disclosed on application.
Here at Keystone we are friendly and knowledgeable - not only experts in the local property market, but also highly experienced Mortgage and Protection Advisers who can offer guidance on a range of policies.
Even if you don’t organise your mortgage through us, we can still help with your mortgage related insurance cover. Come and visit us at our office, or call us on 01244 836 636.