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LIFE & CRITICAL ILLNESS – Competitive mortgages & protection insurance

Life assurance & critical illness are key to protecting you and your loved ones

What is life assurance?

Life insurance is insurance you take out with an insurer to pay out a lump sum if you die, it can be a good way to provide for your family and cover and debts etc.

What type of life insurance policy should I buy?

Most people have two main protection needs that can be covered by life insurance (often known as life assurance):

  • paying off large debts like your mortgage
  • family protection, where you leave behind money for your family to live on after you’ve died.

Different types of insurance policy are good for different protection needs.

Term assurance

The most basic type of life insurance is called term insurance. With term insurance you choose the amount you want to be insured for and the period for which you want cover. If you die within the term, the policy pays out to your beneficiaries. If you don’t die during the term, the policy doesn’t pay out and the premiums you’ve paid are not returned to you.

There are two main types of term assurance to consider – level-term and decreasing-term insurance. Sometimes a combination of the two is the best answer.

Level-term life insurance policies

A level-term policy pays out a lump sum if you die within the specified term. The amount you’re covered for remains level throughout the term – hence the name. The monthly or annual premiums you pay usually stay the same, too.

Level-term policies can be a good option for family protection, where you want to leave a lump sum that your family can invest to live on after you’ve gone. It can also be a good option if you need a specified amount of cover for a certain length of time, e.g. to cover an interest-only mortgage that’s not covered by an endowment policy.

Decreasing-term life insurance policies

With a decreasing-term policy, the amount you’re covered for decreases over the term of the policy. These policies are often used to cover a debt that reduces over time, such as a repayment mortgages.

Premiums are usually significantly cheaper than for level-term cover as the amount insured reduces as time goes on. Decreasing-term insurance policies can also be used for inheritance tax planning

Family income benefit policies

Family income benefit life insurance is a type of decreasing term policy. Instead of a lump sum, though, it pays out a regular income to your beneficiaries until the policy’s expiry date if you die.

The upside of family income benefit is that it’s easier to work out how much you need. For example, if you take home £2,000 a month, you can arrange for the same amount to be paid out to your family if you die.

However, there is a downside too. If you die two years into a 20-year family income benefit policy, your family could get £2,000 a month for 18 years. But if you die a year before the policy ends, your family gets £2,000 a month for just one year.

Whole-of-life policies

As the name suggests, whole-of-life policies are ongoing policies that pay out when you die, whenever that is. Because it’s guaranteed that you’ll die at some point (and therefore that the policy will have to pay out), these policies are more expensive than term assurance policies, which only pay out if you die within a certain timeframe.

Whole-of-life policies can be a useful way to cover a future inheritance tax bill.

For free impartial no obligation advice on Life Assurance please contact us on 01765 607347 or complete our online quote form.

What is critical illness insurance?

Critical illness insurance can offer a degree of financial security, to cover you in the event of becoming seriously ill.

What is a critical illness?

A “critical illness” is a life-threatening or debilitating condition, and is generally set out in the policy documents detailing the list the insurer determines as critical illness.

 Who needs it?

There are a variety of reasons why you would need cover and this differs between different people.

As an example, If you have children, you may want to ensure your family is provided for if you can’t work due to ill health.

If you’re married, you might want a policy to ensure your mortgage and bills are paid so your spouse can have some time to look after you. If you have a mortgage some form of cover is often a requirement of the mortgage application.

Recovering from a critical illness can also mean extra costs for you and your family e.g. making changes to your home or car. An insurance payout could be used to cover this, but generally it takes away the added stress and worry around your Finances at a time you need to focus on recovery.

How does it work?

Critical illness cover pays a tax-free lump sum if you’re diagnosed with one of your insurers listed critical illnesses during the term of the policy.

Provided you keep paying your premiums, you should be covered throughout the term. Once the policy term ends, all protection stops and you will need to understand your options after this point.

When you take out a policy you can decide how long it will last e.g. until your children have grown up, or until the mortgage is paid off. You can even set it to run for life.

You can also usually choose how much you will be be paid out should you need to use it, the higher the pay out the higher the premiums, however if you need it you will be glad you covered yourself.

Critical illness cover can be integrated with a life assurance policy and in this instance it only pays out once and then the policy is finished. You can take stand alone critical illness which covers you as an independent policy hence if this policy pays out your life assurance still remains in place (given you have life assurance).

Should I get critical illness insurance?

Most people could benefit from a critical illness policy, but the impact of the premium and the benefit of the payout will vary from person to person.

It’s a matter of weighing up the monthly cost against the benefits of a payout. If you and your family depend heavily on your salary, it could be exactly the kind of protection you need.

If you have no financial commitments or dependents, critical illness insurance may not be for you.

How much cover do I need?

Traditionally, critical illness plans pay out the full amount regardless of how serious your illness actually is.

Some offer severity-based cover, where the payout depends on how bad your illness is.

When deciding on how much cover you need, think about what you would lose if you were unable to work due to illness.

Also, think about what financial commitments you would still have, such as children or a mortgage.

Which illnesses are covered?

Illnesses covered will vary between insurers, so it’s important to check the details of a policy before you buy.

Policies commonly cover illnesses such as cancer, heart attacks and strokes, and may include optional add-on illnesses.

Other conditions that could be classed as critical illness include:

  • Major organ transplant
  • Parkinson’s disease
  • Deafness
  • Traumatic head injury
  • Bacterial meningitis
  • Cancer
  • permanent loss of a limb

A critical illness and terminal illness are different things – a standard life insurance policy should cover any illness where you are expected to die within 12 months of diagnosis.

Your medical history

You’ll be required to give some details about your medical history in order to get a critical illness insurance quote.

This is so that an insurer can determine how much of a risk you are, and calculate an accurate price.

It’s important to be honest with your insurer to avoid any future issues with claims, if they find out that the information on your application is false your policy will be void.

Most policies also carry an initial exclusion period, during which you’ll be unable to claim. A typical exclusion period is six months.

For more information on our Critical illness cover contact us on 01423 561060 or info@sj-fs.co.uk