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Critical Illness Cover -What is it?
What is critical illness cover?
Critical illness is an assurance policy, designed to pay out a lump sum if a person is diagnosed with an illness or condition, that their critical illness provider accepts is a critical illness. Different providers have different illnesses that they will provide cover for.Critical illness polices are usually arranged on either a Decreasing term or level term basis. A critical illness policy arranged on a decreasing term basis is specifically designed to cover a repayment mortgage. As your mortgage balance reduces over time so does the amount you are covered for under a decreasing term critical illness policy. For example If you originally took out a £100,000 mortgage with a £100,000 worth of decreasing term critical illness cover, in year 10 of this mortgage you may only owe £70,000. If you were to suffer from a critical illness at this time, the policy would then pay out £70,000. By structuring the policy in this way decreasing term critical illness cover s the most cost effective way of protecting a repayment mortgage.
Critical illness arranged on a level term basis works differently. Here the value of the critical illness cover remains constant throughout the term of the policy. So if you took out £100,000 worth of cover initially, this is the amount you would be covered for throughout the term of the policy. Level term critical illness cover can be used to protect you and your family from both an interest only and repayment mortgage.
Critical illness is often confused with a number of insurance products, most commonly income protection which pays a monthly cash sum if you are unable to work due to sickness or accident, or with private medical insurance; which is an insurance policy designed to pay the cost of medical treatment not undertaken by the NHS
Most critical illness policies will also payout if you suffer from total and permanent disability. The definition of this will be provided to you by the Critical Illness Provider within the Key Facts Documentation. It is important that this is checked as different providers have different standards that they apply to the definition of total and permanent disability.
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