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Mortgage Insurance: The Essentials
Have you considered what would happen with your home and mortgage should you or the main breadwinner in your family became critically ill or even die? Although it is not a nice subject to talk about, it is vital that you give mortgage insurance, such as life insurance some serious thought and then take action to ensure that you have the right mortgage protection insurance in place, should the worst happen. Mortgage insurance gives you peace of mind, knowing that your mortgage and home will be protected for your family in your absence.
If you have a mortgage, you may be concerned about what would happen if you got seriously ill. You might already have life insurance protection but that is to cover you in the event of death. You might want to consider having both life and critical illness cover so that you are protected for death and serious illness and injury.
Critical illness insurance is a long-term insurance policy which covers serious illnesses and injury. Usually there is a defined list of critical illnesses and injuries outlined in the policy paperwork, if you contract one of these, the critical illness cover will pay out a tax-free, one-off payment. The cash lump sum can be used for whatever you choose, so it could be used to pay the mortgage, pay off any debts, make any alterations to the home that might be required or pay for private medical treatment.
Not all conditions are covered in critical illness cover, however, and a policy will also outline how serious the condition must be in order to be covered.
Each policy differs but examples of critical illnesses and injuries that might be covered are:
Cancer: Certain types and stages
Permanent disabilities as a result of injury or illness such as the loss of a limb
You need be aware that some serious illnesses might not be covered including some cancers and each condition that is covered will have a clause defining exactly how severe the condition must be for a claim to be accepted. You must read the policy in detail before you make a decision on which policy to choose so that you are sure the cover will meet your needs as the quality of cover can vary greatly from one provider to another. For example most policies will cover 'loss of limb' but some providers will require the loss of two limbs, some one, and some just a hand or foot rather than the whole limb. Usually you won't be covered for health problems that you already had before you took the critical illness cover.
Critical illness cover should be considered if you don't have savings and if you don't have an employee benefits package to cover you if you have a long stretch of time off work. In fact even if you do have you could change employer in the future. Although in the UK, there are welfare benefits that can help in the event of illness or injury, the benefits are often not enough to cover all of the monthly expenses and how much you are entitled to depends on various factors such as whether you have children, savings or a partner that works.
If you have plenty of savings to cover a long period of sickness or a partner with good earnings who could cover your share of costs should something happen then, you might not have as a great a need for critical illness cover.
Insurance providers use a range of factors to work out how much cover to offer you and the monthly cost including; age, health, medical history, family medical history, whether you are a smoker or have ever been a smoker and your job.
Critical illness insurance is typically more expensive that life insurance as statistically, you are 5 times more likely to claim on a critical illness policy than a life insurance policy before the age of 65.
Here are a few things you should consider when looking into critical illness insurance and asking "is it worth it?":
Quality of cover:
Choosing a policy that offers comprehensive cover is usually more important than choosing the cheapest policy or the policy that gives you the largest sum assured. Some policies will offer additional benefits and cover an extra range of illnesses and procedures including mastectomy, low grade prostate cancer and accidental hospitalisation.
Some policies will cover unusual illnesses but consider whether they are worth paying extra for as the likeliness of claiming will be low.
If you want a policy with extra coverage then look for policies which offer 'ABI+' definitions which means that the critical illness definitions shown on the policy exceed the basic policy definition set by the Association of British Insurers (ABI), which is the trade body for insurance companies.
Protection for your children
Some policies allow you take additional cover for your children. If your child is diagnosed with a critical illness outlined in the policy, then a lump sum will be paid out.
'Free' life insurance
It often costs little or no extra to add life insurance to your critical illness policy and in some cases can actually make the policy cheaper.
Insurance providers vary massively in terms of what illnesses they cover and the level of severity the illness needs to be before it is covered. It is important to take advice on this subject to ensure you get the right policy for you.
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