Life & Critical Illness Cover

Many types of cover only pay out if you die before a date specified in your policy. Whole of Life cover pays out no matter when you die.

As you might expect, this type of policy is on the more expensive end. We’ll look at cheaper options below.

However, if your main goal is to leave a nest egg for the people you’re leaving behind, this is a good fit. It’s also great if you are worried about how much you’ll spend after an initial term policy ends.

Unlike Whole Life Insurance, this has a fixed term and will only pay out if you die within a specific time period. 

This is ideal if you are looking to make sure that the mortgage is paid off in the event of your death. If your mortgage is fixed at 35 years, there is no need to extend your Life Insurance beyond that. This way, you know that if you were to die before your mortgage was paid off, your Life Insurance would cover the outstanding balance.

This will be a little cheaper than Whole Life Insurance and you can rest assured that your payout will stay the same throughout the policy – whether you die early on in the policy or close to the end. 

However, you must remember that there won’t be a payout if you die after the end of the policy.

If you’re after a cheaper policy, a Decreasing Term policy could be the right fit for you. In return for a cheaper monthly premium, the payout will fall every year.

This is a good fit if your only worry is to cover the outstanding mortgage – your mortgage will fall every year and your payout will fall in line with that. 

If your only concern is paying off the mortgage and you don’t get a Decreasing Term Mortgage, after several years of paying off your mortgage, you could find yourself ‘over-insured’ and paying out more per month than you need to. 

As you might imagine, this is the opposite of Decreasing Life Insurance, with payouts potentially going up every year instead of down. 

With an index-linked policy, your payout is tied to inflation, or you can arrange for a policy that rises by a fixed percentage every year. 

You won’t be surprised to hear though, that this will mean your premiums are likely to be much higher, so again, think about your goals before you commit.

This policy covers you for a fixed period, which you can then extend when that period ends quite simply, without worrying about any more medical checks. 

However, your monthly payment may increase based on your age, but apart from that, it’s a straightforward renewal, as any new health problems shouldn’t be taken into account, so you won’t be paying a higher premium if you’ve developed a medical issue since taking out the original policy.

We’ve mentioned Joint Life Insurance before, but don’t forget this is an option when taking out your policy. It is likely to be cheaper than paying out for two individual policies, and will cover your partner in the event of your death. 

However, Joint Life Insurance only pays out when one of you dies, it won’t pay out again when the surviving spouse dies. If the surviving partner would like to leave something to family or any dependents, they would have to take out a new single policy.

If your marriage or long-term partnership comes to an end, you will need to make a decision about the joint cover you had taken out. A divorce does not automatically trigger the end of your joint policy, you will need to talk to the lender about cancelling it. Until you do, you will continue paying for it and it will pay out in the event of a death. If you have children together, this may be something you want to continue, but if not – make sure you cancel it!

This Life Insurance is offered by your employer, paying out to your family if you die while in their employ. This doesn’t only cover death at the workplace or death caused in some way by your job or the workplace, only if you die while working for that company. 

However, Death In Service has the smallest payout, equivalent to only a few years salary, which may not cover any outstanding mortgage or other outstanding debts. It also ends as soon as you leave the company and you might not get Death In Service cover in your next role.

Now that you know all about the various types of Life Insurance cover you can get, now is the time to think about other elements of the policy, most notably, critical illness cover.

While Life Insurance pays out in the event of your death and supports your loved ones with funeral costs and outstanding debts, what about if you fall seriously ill?

Illness is a difficult time for the whole family, not just because of the emotional impact and worry of someone being ill, but the additional worry about money. This is where critical illness cover comes in.

If your policy covers you for critical illness and you are diagnosed with an illness like cancer, heart attack, stroke or brain tumour, that would severely impact your ability to work, a lump sum would be paid out to cover:

• Household bills
• Mortgage repayments
• Loss of income
• Private medical needs

While this won’t make up for the emotional turmoil and stress of such a time, it will remove the worry around paying the bills. No one wants to think about getting seriously ill, we all hope that we are invincible! But there is no way to know what the future holds and knowing your mortgage and bills are covered is something that will give you some peace of mind should the worst happen. 

If your circumstances change, it’s always a good idea to contact your policy provider about updating your cover as they are best placed to advise you.

You should think about updating your cover:

• If you get married. You may want to look into joint cover or extending your policy so there is a larger payout to support your spouse. Even if you aren’t married, if you and your long-term partner are planning to invest in property together, you may want to consider updating your cover
• If you have children. If your policy was just to cover your mortgage, you may want to consider updating it when you have children, so that more can be left to them. This could cover university fees in the future, or help them get on the property ladder
• If you invest in more properties. If you start to build out a portfolio, it’s time to have a chat with with your broker about protecting that portfolio

It really depends on what you want your Life Insurance to cover. If you only want your mortgage cleared in the event of your death, you could take out Level Term or Decreasing Term insurance.

However, if your hope is that your family will receive a lump sum payment which would make their lives easier – perhaps by helping them get on the property ladder or pay for education – you may want an Increasing Term or Whole Life policy.

If you’re not sure, call your broker, who will be able to tell you how each policy varies and you can make an informed decision based on their advice. If you are every unsure, never make a hasty decision, always have a chat and take the time to consider your options before signing on the dotted line.

The easiest way you can do this is to shop around to make sure that you’re getting the best deal for you, both in cover and monthly outgoings. However, there are other ways you can keep your monthly premiums down.

• Start sooner, rather than later. The younger you are when you first take out your policy, the cheaper it is likely to be
• Choose the right term. Figure out what you want to do with your life insurance and choose the right policy, so you aren’t ‘over-insuring’ yourself and paying for more than you want or need
• Pursue a healthy lifestyle. The healthier you are, the cheaper your insurance is going to be. Don’t ever smoke and, if currently do, quit! Think about other lifestyle adjustments that would make you a healthier person – and potentially drive down your premiums
• Pay on time! It sounds simple, but if you miss a payment, you’ll be charged a late payment fee. Set up a direct debit so you don’t have to think about it and potentially miss it a payment
• Look online. Online policies are often cheaper as you are usually buying direct from the insurer, rather than via a middle man who will need to profit from the sale

Consider your add ons. Really think about the add ons that you need before you sign up for them. If you really don’t need them – don’t get them and don’t pay for them

Unfortunately, yes! It will increase every year you age as every year you move closer to your life expectancy. It will usually increase about 5% every year in your 40s, but could increase up to 12% a year in your 50s.

That’s a pretty steep increase, so you want to get your insurance locked in as early as possible to keep those payments low!

In 2020, insurers paid out a record £3.4 billion in Life Insurance, the total value of claims was up 8% on 2019. On average, pay outs were around £79,304.

Monthly premiums vary depending on:

• Your age
• Your health
• Your policy length
• Additional cover

The monthly premiums are usually from around £16 – £30, however it can be as little as £5 if you take out the policy in your early 30s.

As always, make sure you’re shopping around to get the best deal!

While Life Insurance can seem straightforward – a lump sum will be paid out in the event of your death – there are instances where it won’t pay out.

• Non-disclosure. If you die due to a medical condition that pre-dates your insurance and you didn’t tell your insurer when taking out your policy, they will not pay out
• Outliving your policy. If you’ve taken out a fixed term policy, which you then outlive – there won’t be any payout from that policy

Terminal illness. You are likely to get an earlier payout to support you while you’re ill, so there either won’t be any in the event of your death or it will be a smaller sum