Critical illness cover for mortgage protection

A serious illness can mean months away from work, or a return on reduced hours. The mortgage payment stays the same. For a couple, the healthy partner may also need time off to help, which can reduce household income further at the same time.

A lump sum used to reduce or repay the mortgage lowers or removes that monthly commitment, so the household has less to find each month while the person who is ill recovers.

Decreasing cover

The amount of cover reduces over the term, roughly in line with a repayment mortgage balance, and it is usually the lower-cost option. It reduces at a rate set by the insurer, so if your mortgage rate is higher the balance may fall more slowly than the cover. Allowing some margin can help.

Level cover

The amount stays the same throughout. It suits an interest-only mortgage, where the balance does not fall, and people who would want money left over for other costs after dealing with the mortgage.

Critical illness cover for a mortgage is often arranged as a single policy that pays on life or earlier critical illness. It pays once: on a valid critical illness claim or on death, whichever happens first, and then it ends. That usually costs less than two policies, but after a critical illness claim there is no life cover left from that policy.

Separate life and critical illness policies can each pay out, so life cover continues after a critical illness claim. They cost more. Our guide to life insurance for mortgage protection covers the life cover side in more detail.

The main factors are:

• •The outstanding balance and remaining mortgage term
• •Whether the mortgage is repayment, interest-only or part-and-part
• •Whether you want to cover the full balance or part of it
• •Your age, health, smoking status and occupation
• •Whether the cover is combined with life insurance or arranged separately

If the full amount is not affordable, covering part of the balance can still reduce the monthly payment meaningfully. We compare definitions and terms alongside price, because two policies at a similar cost can respond differently to the same diagnosis.

Critical illness cover pays a lump sum on a qualifying diagnosis, whether or not you can work. Income protection for your mortgage or rent pays a monthly income while you are unable to work because of illness or injury, after a waiting period, and is not tied to a list of conditions. It does not ordinarily pay for redundancy.

Income protection is usually better at keeping payments going through any long absence. Critical illness cover can reduce the debt itself after a specific diagnosis. Which comes first depends on your job, sick pay, savings and budget.

Have your mortgage balance, remaining term and mortgage type to hand, along with details of any existing cover or employee benefits. We can then show you decreasing and level options, combined and separate policies, and how they compare with income protection.