Why cover?
  • affects 1 in 4 women / 1 in 5 men before retirement
  • 94.1% of the critical illness claims are paid
  • protect yourself and your family if you get seriously ill
Why us?
  • get the cover that will pay when you need it
  • save up to 35%, cover from £5 a month
  • free, fast and without obligation quotes
Insurers: Aviva, Legal & General, Liverpool Victoria, Scottish Widows, Vitality, Zurich

Protecting Your Mortgage with Life Insurance and Critical Illness Insurance

When you take out a mortgage, your lender will require you to secure your loan.

Mortgage Life Insurance

First, they will ask you to take out a mortgage life insurance. This life insurance coverage will protect the lender in the event that you pass away. Now, you can also place additional levels of protection by adding a critical illness insurance cover with your mortgage life insurance policy.

The mortgage life insurance policy will provide the payment in the event of your death. This is designed to decrease at the same rate as your total mortgage debt. As you pay for your mortgage, the level of your life insurance coverage will also decrease.

But what about if you get seriously ill and are not able to work?

Do I need critical illness insurance for my mortgage?

Being diagnosed with a serious illness can put your mortgage at risk.

– A critical illness may strike when you least expect it. Know more about the critical illnesses you may be susceptible to.

– Serious illnesses are a major reason for foreclosures. In the US, only 3% of foreclosures are due to death but 50% are due to critical illnesses. In Canada, they cause 48% of mortgage foreclosures. There are indicators that the percentages are roughly the same for the UK.

– The state pitches in but not enough. Jobseeker’s allowance is between £60 to £85 weekly for those who qualify for incapacity benefit. This provides for your basic needs, but may not allow you to keep up with mortgage payments.

– How about savings? According to the 2011 Credit Action report, 40% of UK citizens have little or no savings, with 15 million whose savings will only be enough to last until the weekend.

The danger is that you may face foreclosure and wreck your credit rating because you cannot pay for the monthly mortgage. If you are the main breadwinner (or even just supplement the family’s total income), it is crucial that you protect your family from financial crises such as foreclosure.

Why Buy Critical Illness for Your Mortgage?

Aside from the risk of getting your home foreclosed due to your being diagnosed with a bad illness, here are some good reasons why buying critical illness cover to protect your mortgage is a good idea:

  • It provides a lump sum payment.  The considerable lump sum can be used to pay off your mortgage.

  • It can be a supplement to your other coverages. Your existing health insurance can be used to cover a majority of your treatment needs while critical illness insurance can be used to supplement out of pocket expenses.

  • The lump sum is tax-free. You don’t have to worry about taxes cutting on the insurance proceeds.

Beefing Up Your Protection with Critical Illness

When you are looking towards getting critical illness insurance (with the view of protecting your mortgage, as well as other financial needs), these are the things you should carefully consider to help you get the right kind of cover that you need:

  • Your level of debt. This is not just with regards to your mortgage debt, but with other debts and obligations as well. When you are considering how much cover to get, the rule of thumb will be roughly 75% of your total debt for the next five years.
  • The kind of mortgage you have. For a repayment mortgage, a decreasing critical illness cover is most appropriate while a level critical illness cover is best for an interest-only mortgage.
  • Other related expenses. This includes your daily needs, as well as your medical needs. You need to study these expenses vis a vis your current savings. To what extent will your savings last?
  • How long your family will be dependent on you for financial support and income. This includes how much you need to save up for your children’s education. When your children become financially dependent, you can start putting in your money for savings which can help provide for eventualities such as a critical illness.

Options related to your mortgage:

  • Mortgage decreasing critical illness cover. This will help you save up on premiums since this is cheaper than a level cover. As you pay off your mortgage, the amount of cover also decreases in accordance to the remaining balance on the mortgage.
  • Guaranteed Mortgage Repayment Option. This ensures that the mortgage is fully paid upon a diagnosis of critical illness. This is applicable for decreasing covers.

Know more information on mortgages and critical illness cover; read How critical illness cover works with mortgage repayment.

Last updated on: 18.1.2013

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