Critical Illness Cover & Life Insurance

Key facts to consider

Life Assurance

Mortgage Protection / Decreasing Term Assurance: This type of plan is designed to pay a lump sum if the life assured dies or is diagnosed with a terminal illness (usually with 12 months life expectancy or less) within the term of the policy, which could then be used to part or fully pay off your mortgage. The total sum insured will decrease in line with the outstanding mortgage balance during the mortgage term.

Level Term Assurance: Level term assurance policies have a known level of cover, that does not change or decrease, which will be paid out in the event of death or diagnosis of a terminal illness within the term of the policy. Usually such plans are arranged to provide a level of family protection.

It is important to note that it is sometimes only slightly more expensive to own individual plans rather than a joint life policy and is therefore much better value for money as potentially two separate policies can offer double the payout should both parties die during the policy term.

Critical Illness Cover

In the event that you suffer a specified critical illness then the sum assured under the contract will become payable. Common conditions covered within a plan include cancer, heart attack, stroke and MS. Definitions of a critical illness vary between insurers and you should review a list of which illnesses are covered within the Key Facts Document when reviewing any policy proposal. Prospect has a number of excellent tools which can help you compare cover between different insurers so that you can make an informed choice.

Family Income Benefit (FIB)

Primarily designed for parents with children, FIB may be one of the better value protection plans on offer. Rather than delivering a lump sum should you die, it is designed to provide a regular, tax-free, monthly (or annual) payment for your dependants – from the time of the claim to the end of the plan term.

These policies are suitable for people with young families who wish to protect against the loss of income provided by either or both parents. Family Income benefit plans can used for various reasons, for example they can form part of divorce settlements. Whilst divorcing couples can often agree on monthly maintenance payments, the consequences of death of either parent whilst their children are still dependant is often overlooked. By effecting a family income benefit policy the recipient of the maintenance payments is protected should the insured die before the children become financially independent.

Waiver of Premium

Sometimes known as payment protection, this option ensures that premiums continue to be paid in the event that you are unable to work as a result of an accident or sickness. This benefit commences after a specified period of absence, referred to as the deferred period. Definitions of ‘disability’ vary considerably and you should review a list of which ‘disabilities’ are covered within the Key Facts Document when reviewing any policy proposal.

Fixed Premiums vs Reviewable

Some companies offer guaranteed or fixed premiums, whilst other plans reserve the right to review premium levels on a periodic basis. There is usually a small additional charge for the advantage of a guaranteed premium.