Critical Illness Cover: Decreasing Life Insurance Explained

Critical illness cover is a type of life insurance policy that offers protection in the form of a tax-free lump sum in the event of a serious illness or injury. This can be used to pay off a mortgage, cover any loss of earnings, or make necessary adjustments to your home. It can be purchased as a standalone policy or as an add-on to a term life insurance policy. Decreasing term life insurance is a type of life insurance where the payout reduces over time. If you die or are diagnosed with a terminal illness while the plan is in place, your loved ones will receive a tax-free lump sum that reduces to zero at the end of the plan. This type of insurance is typically used to cover repayment mortgages or other types of decreasing debt. It is possible to take out critical illness cover on a decreasing term basis, meaning that the cover falls over time alongside an outstanding mortgage.

Critical illness cover can be purchased as standalone or combined with life insurance

Critical illness cover is a type of life insurance policy that offers protection in the event of a serious illness or injury. It pays out a tax-free lump sum to support you and your family if you are diagnosed with a serious condition covered by the policy. Critical illness cover can be purchased as a standalone policy or as an add-on to a term life insurance policy.

As a standalone policy, critical illness cover can be purchased from providers who offer it separately from life insurance. This type of cover is typically more expensive than when it is combined with life insurance. It is important to note that critical illness cover, unlike certain types of life insurance, is not usually linked to a mortgage.

When purchased as an add-on to a term life insurance policy, critical illness cover can be included as a life insurance add-on, combining protection in a single policy. This option is often chosen when taking out a mortgage. Critical illness cover can be added as "additional cover" or "combined cover". Additional cover pays out twice: once if you are diagnosed with a critical illness and again if you die. On the other hand, combined cover pays out only once, either on the diagnosis of critical illness or death.

The choice between standalone and combined critical illness cover depends on individual circumstances and preferences. Standalone critical illness cover may be preferred by those who want dedicated protection against serious illnesses, while combined cover can provide a more comprehensive form of protection by addressing both critical illnesses and life insurance needs.

Critical illness cover pays out a tax-free lump sum

The lump-sum payment is typically a one-time payment, and the policy usually ends after the benefit has been paid. Critical illness cover is often purchased alongside life insurance, especially when taking out a mortgage. This can be done through additional-cover policies, which pay out twice: once when the policyholder is diagnosed with a critical illness and again if they die. Alternatively, combined-cover policies pay out only once, either on the diagnosis of a critical illness or the death of the policyholder.

The cost of critical illness cover depends on factors such as the amount of cover, the policyholder's health and lifestyle, and the length of the policy. It is generally more expensive than life insurance because the risk of becoming seriously ill is greater than the risk of death.

When deciding on critical illness cover, it is important to carefully read the policy terms and conditions, as the number and types of illnesses covered can vary. Additionally, there may be a deferred period before the payout is received, and the payout may be partial rather than the full cover amount.

Critical illness cover can be purchased on a decreasing-term basis

A decreasing-term critical illness cover policy is designed so that the level of cover declines over time, meaning the amount insured should be sufficient to repay the outstanding mortgage. This type of insurance is usually more affordable than level-term cover as the pay-outs decrease over time. It is important to note that most decreasing-term plans do not guarantee to repay the loan in full but rather the level of cover declines based on an assumed policy interest rate, usually between 8% and 10%.

The main benefit of decreasing-term critical illness cover is that it can help to ease financial pressure after a significant future life event, such as a serious illness or injury that prevents you from working. The pay-out from a decreasing-term critical illness policy can be used to cover general living costs, monthly rent payments, loan instalments, or a repayment mortgage. It can also help to cover other regular outgoings, such as childcare costs, medical bills, or adaptations to your home.

When deciding whether to purchase critical illness cover on a decreasing-term basis, it is important to consider the potential drawbacks. The main drawback is that the pay-out may not be as much as with other types of term insurance, as the pay-outs decrease over time while the premiums remain the same. Additionally, it is important to ensure that the rate at which the cover decreases is roughly the same as the rate at which you are repaying your mortgage, to avoid a shortfall.

Critical illness cover can be purchased on a level-term basis

Level-term critical illness cover is often purchased alongside life insurance when an individual is taking out a mortgage. This type of cover can provide a financial safety net for your family if you become seriously ill, and can help to cover costs such as mortgage payments, rent, medical bills, and general living expenses.

The conditions covered by critical illness insurance vary between providers, but typically include serious ailments that are not life-threatening, such as non-terminal cancer, multiple sclerosis (MS), and severe head injuries. Terminal illnesses, on the other hand, are usually excluded from critical illness cover and are instead covered by life insurance policies.

When purchasing level-term critical illness cover, it is important to carefully check the policy terms and conditions, as the range of illnesses covered can differ significantly between providers. Additionally, there may be a deferred period before you receive your payout, so it is crucial to understand the specifics of your chosen policy.

Level-term critical illness cover can be purchased as a standalone policy or as an add-on to a life insurance policy. When deciding whether to include critical illness cover in your life insurance, it is worth considering the additional protection it can provide in the event of a serious illness.

Critical illness cover can be purchased as mortgage protection insurance

When purchased as an add-on, critical illness cover can be included in two ways. The first is as an “additional cover” policy, which pays out if you are diagnosed with a critical illness and again if you die. The second is as a “combined cover” policy, which pays out 100% of the chosen cover amount upon diagnosis of a critical illness or death, but not both. It is important to know which type of policy you are purchasing, as this will affect when and how much the policy pays out.

The cost of critical illness cover depends on several factors, including age, health, lifestyle, and the length of the policy. It tends to be more expensive than life insurance because you are more likely to claim it during your working life. However, it is still a good idea to shop around for the best price and consider combining it with life insurance to save money.

When choosing a critical illness policy, it is important to carefully read the policy terms and conditions. Policies typically cover around 40-50 conditions, with the most common being cancer, heart attacks, and strokes. However, some policies cover fewer than 10 illnesses, while others cover more than 100. It is also important to note that critical illness and terminal illness are classed differently by insurance providers, with terminal illnesses (defined as a life expectancy of less than 12 months) excluded from critical illness cover.

In addition to helping with mortgage payments, critical illness cover can also be used to cover other expenses, such as medical bills, loss of income, or necessary adjustments to your home. The payout is usually a tax-free lump sum, which can be used at your discretion to ease financial concerns during a difficult time.

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