Just how important is it to have critical illness cover in relation to a mortgage.
A Critical Illness Insurance plan, usually linked to a life assurance policy for a mortgage, is designed to pay out a lump sum payment upon first diagnosis of a specific critical illness. It can also be provided on a standalone basis to provide cover against critical illness to generate a cash sum to meet the costs of potentially massive changes to a persons life style following a critical illness.
There are limitations to this type of insurance, however - for instance, only some forms of cancer, stroke and heart attack are covered but your financial adviser should be able to find the correct cover for you and explain the definitions for the best provider for you in more detail.
There is a purpose to this article, please believe me, and I appreciate that most articles on these subjects either end up in the bin or evoke yawns of ‘boring’ and I do understand this, but please bear with me.
As an IFA with over 20 years experience I almost always advise that clients at least arrange critical illness cover in conjunction with their life cover when covering their mortgage. In my view it is vital when there are children involved and equally important for single people too.
But I want to tell you 3 stories.
Story 1.
Young couple in their early 30’s didn’t want critical illness cover because they were fit and it wouldn’t happen to them – but it did! He was the main breadwinner, 2 very young children with a large-ish mortgage, and about 2 years later, 5 days before Xmas his wife phoned me to explain that he was in Intensive Care, things looked very tricky, and were they covered for critical illness? I explained that we had discussed the issue at great length and that they had declined cover. Fortunately he recovered but unfortunately he is now uninsurable!
Story 2.
Young couple, owned their own (profitable) business where they both worked with two staff and the business was extremely profitable – they were in their early 40’s, large house in North London, with a mortgage of in excess of £300,000 (13 years ago that was a large mortgage) which I had arranged for them covered by an endowment with critical illness cover. They had two children in public school with a nice life style.
A few years after we had arranged the mortgage they got into short term cash flow problems, asked me to go and see them to discuss their options of cutting expenditure. At that time the endowment had accrued a significant value and they felt that the most expedient way out of their problem was to encash the endowment. I strongly advised against this course of action, advising at the very least that they replace it with a term policy with critical illness cover. As this would be an additional cost they declined my advice and proceeded with encashment.
I distinctly recall her words as she explained to me that they were both fit and well, had never had problems in the past and that “it would never happen to me” – hence the subject title of this article.
3 weeks after encashment she was diagnosed with breast cancer, had a double mastectomy, they lost the house because they were unable to maintain the mortgage payments due to the effect on the business and lost revenue and eventually separated and divorced.
Story 3.
A young couple with a teenage son required protection, life and critical illness cover, and the husband wanted to take out cover because he had just become (forceably – he had lost his well paid job in the recession in the 1990’s) self-employed and was convinced that the stress of fluctuating income, especially with a mortgage to pay for, would kill or incapacitate him. They couldn’t afford a great amount of cover but wanted critical illness cover for as much as they could afford. They arranged cover for £50,000 some 19 years ago.
2 years ago the wife was diagnosed with breast cancer. She had the operation to remove a couple of lymph nodes, went through chemotherapy, survived and after 9 months was able to return to work. The insurance company paid out the £50,000, they were able to give themselves a little bit of breathing space clearing credit card debts and a couple of loans, and now they are both working and earning again.
So – 3 little stories but each one of which had a massive impact on the people involved. I suppose one of the best ways to put it is to use the phrase used by the insurer Bright Grey
–“ what do you want, your life and no mortgage or your life and no house?
Do I believe in Critical Illness Cover – you bet your life I do!
If after you have read this article you still think that it will never happen to you, just look at the statistics – people are living longer, lead more stressful, debt filled lives and in most cases survive things like heart attacks which, probably 20 years ago, they would not have survived. There can be no worse situation to find yourself in than to suffer a critical illness and survive it but be unable to work or return to the previously high paying job which supported the mortgage.
And one other thing – speak to an Independent Financial Adviser (IFA) and they will be able to do the research to find the most suitable cover for you and your family.
Or better still, give us a ring on 01763 232763 (mob 07904 270304) and we will discuss the options open to you without obligation.
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