Mortgage borrowers require insurance that can pay off their loan in an emergency. Most people recognise that life insurance is essential for anyone with dependants – the proceeds of the policy can help minimise debt and disruption in the wake of a tragedy.
Less well understood is the need for insurance that will pay out if the policyholder contacts on of a list of about 30 critical illnesses such as heart attack, cancer, stroke and coronary artery by-pass surgery. Other conditions that might be covered (each policy has its own list) include multiple sclerosis, Alzheimer’s, Parkinson’s, paralysis, blindness, deafness, kidney failure, major organ transplant and any diagnosed terminal illness.
Permanent disability would also trigger a claim. Again, each policy is likely to have its own definitions of what constitutes sufficient disability for a claim to be paid. As your adviser, we an help you choose the best for your circumstances.
The proceeds of a critical illness policy are paid as a tax-free lump sum.
The likelihood of contracting a debilitating illness before you reach retirement age is actually higher than the risk of dying in the same period. So, if you see the sense of having life insurance, you must see the sense of having critical illness insurance as well, especially if you have a mortgage.
We can also advise on a range of policies that combine both life insurance and critical illness cover, meaning you are protected if either grim eventuality occurs.
High incidence of illness
According to British Heart Foundation research in 2011, around 124,000 people in the UK suffer a heart attack each year, and half of them will not return to work. And every day, according to Cancer Research (2011), around 125 women are diagnosed with breast cancer. Insurance companies are finding that the average age of people making claims on critical illness policies is in the mid-40s.
In total, around 25 per cent of women and 20 per cent of men are hit by serious illness before retirement age.
Ensuring the mortgage is covered
Most critical illness policies are put in place to cover the cost of a mortgage should the borrower become unable to earn a living or look after the home and the children. But there are no restrictions on how you use the proceeds of the policy if you are unlucky enough to fall victim and make a successful claim.
As with all insurance, expert advice is essential to help you identify the correct critical illness policy. For example, if you are linking cover to your mortgage liability, your choice of policy will be determined by whether you have an interest-only loan or a capital and interest