Mortgage Protection Insurance and Critical Illness cover

FTBandconfused

Hi All,

My partner and I are buying our first house together and we've been told to look at mortgage protection insurance and critical illness cover.

When i'm getting quotes for this do i get quotes to cover the mortgage plus interest over the mortgage year term or just for the mortgage approved without the interest?

Thanks for your help in advance!

HappyMJ

FTBandconfused wrote: »

Hi All,

My partner and I are buying our first house together and we've been told to look at mortgage protection insurance and critical illness cover.

When i'm getting quotes for this do i get quotes to cover the mortgage plus interest over the mortgage year term or just for the mortgage approved without the interest?

Thanks for your help in advance!

You should look at it but it doesn't mean you should take it. Get quotes to cover the mortgage without the interest. If they were to pay out then there would be no further interest to pay and with payments you will be making tha will reduce the mortgage anyway.

G_M

If your intentention is to pay off the mortage if you die/get sick, then you need an amount that will pay off the balance.

So it depends what kind of mortgage you have.

If you have an interest only mortgage, then each month before you die, you will have been paying off the interest, but not the capital (original loan), so your insurance should be enough to pay the original loan.

If you have a repayment mortgage, then each month you will have been paying the interest plus some of the capital (a small amount initially). So the insurance payment does not need to be as much. However, as the capital outstanding will reduce each month/year, it is impossible to find an insurance figue that will vary in the same way.

Most people therefore still select an insurance amount = to the initial loan (and if they die 5 years later, their beneficiary will have a modest amount of cash as well as the mortgage paid off.)

However, the amount you choose is up to you. You could make it less, or more.

FTBandconfused

Thanks so much for the quick replies!

Better_Days

Be very careful if you do take out one of these policies, and don't necessarily choose the cheapest policy. They often have exclusions for mental health problems which can be very disabling. There will be other exclusions too. You can only make an informed decision if you read and compare the small print on the policies. Make sure you understand the difference between an 'own occupation' policy and an 'any occupation' policy.

If you do go ahead get a copy of your medical records from your GP and declare everything, however minor, on the application form. Insurers are notorious for wiggling out of claims in any way they can.

Be aware that even if you are diagnosed with a condition that is covered by the policy it may take years to get a payout. The insurer may ask you to be 'assessed' by one of their 'independent' specialists who may give a different diagnosis. The insurer may demand that you undertake treatment/therapy on the basis of the recommendation of this 'specialist', but your NHS medical team may not agree, and/or you may have to pay for the treatment privately.

If the insurer decides to contest your claim you will have a battle on your hands. They may lie and mislead you. They may put you under surveillance. They may refuse to tell you what they think your diagnosis is and what medical evidence they will accept to satisfy the policy conditions. It took over 5 years for my claim to be paid, and that was only after I got a solicitor involved.

kingstreet

How long does your employer pay you if you are off work due to illness or disability? How would you pay your mortgage and bills after that?

What happens to your income if you get an illness which prevents you working but isn't one of the things you can claim for under critical illness cover?

Please consider permanent health insurance in preference to critical illness cover. This will replace some of your income if you are unable to work. Ensure you choose the "own occupation" definition of disability and if you can afford it, take a deferred period which ends when your employer stops paying you and have a contract which runs until you retire.

The benefit is paid tax-free, so around 60% of your gross income will equate to what you normally get in net pay.

FTBandconfused

Thanks Better Days and kingstreet for the advice. I'll look into it further over the christmas period when i've got time to review thoroughly.

Hoof_Hearted

Also remember that some insurance companies do their best not to pay out any money and it is often a battle to get what you are owed. That twinge in your back in 1974 or headache in 1972 clearly indicates that the present illness was pre-existing.

gastroboy

Also, if the bank providing the mortgage is trying to sell it to you, don't take it unless you have compared the same type of cover with other providers. They receive a cut of the proceeds and it's often higher than if you go direct to the main insurer. In our case, their quote was 15% more a month than going direct. Still didn't take it though, heard all sorts of dodgy stories when it comes time to paying out.

FTBandconfused

Thanks v much. No i'm looking at moneysupermarket at the moment. There's some that are half the price we were quoted from the bank! With the same cover etc.