Life insurance and critical illness cover explained

What does it do?

Life insurance can seem a bit morbid, and depressing. After all, in order for it to pay out you have to die and (obviously) you’ll never see a penny of it. That’s one way of looking at it. The other is more positive; it’s as unselfish as an insurance policy can be. By taking out life cover you’re reassuring your loved ones, that if tragedy hits, they won’t be struggling financially.

Life insurance can be used for many things, but commonly it’s used to repay a mortgage and ease day-to-day family living costs. Often it’s combined with critical illness cover.

Let’s clear up the jargon (types of cover).

Decreasing term insurance also referred to as mortgage protection

This is where the cover reduces each year in line with the remaining balance on your mortgage. Upon death funds are released, paying off your mortgage.

Family protection

Where money from your policy is used to cover your family’s expenses; and it’s your choice how long you would like this cover to last.

Increasing term insurance

Cover increases in line with inflation to protect you from its effects.

Level term insurance

The level of cover remains fixed for the term of the policy.

Whole of life assurance

The only type of cover that guarantees a pay-out; you cannot outlive the term – unlike level term, decreasing or mortgage protection insurance.

Okay, is critical illness cover worth it?

Critical illness (CI) cover pays out as a lump sum upon diagnosis of a serious medical condition. Because it only pays out once it cannot be used a salary substitute. The medical conditions covered are pre-determined when you take the policy out.

It’s a personal choice whether to take out a CI policy, dependent on your life circumstances and financial commitments. More often than not, it’s combined with life insurance.

Getting a quote.

There are a few things to think about…

1. How much is left on your mortgage? – If you want life insurance to pay your mortgage, you’ll need to know how much is left to pay, and how long you have.
2. What type of cover do you want? – After reading the jargon section above you should have an idea.
3. Critical illness cover? – You may decide this isn’t for you, but taking it out does give an extra level of safety to you and your family.
4. How much cover will you need? – This could include your mortgage, but also any financial commitments that will be left in your stead.
5. Do you require a joint policy? – A joint policy can be taken out between spouses/ partners.
6. Total and permanent disability? – Should you ever lose a limb, eye, or a digit and so forth (we know it’s unthinkable), this provides you with financial cover. Insurers will consider claims in this instance based on the type of occupational cover you have.