Hi all.
Am a financial adviser so can give you a more informed opinion on critical illness cover and permanent health insurance.
Critical illness policies pay out a lump sum on diagnosis of a listed critical illness. The money is not linked to the mortgage so you can spend it on what you want. Obviously it depends on what you have, but some people use it to pay off debts, to live whilst they are off work, to adapt their house, to pay for private medical treatment, to treat the family to a holiday etc etc.
Everyone should have critical illness cover for their mortgage at the very least. If you have a repayment mortgage you only need decreasing term insurance, which will be a lot cheaper than level term. In addition, if there are two of you on the mortgage, you only need one policy to cover both of you. If person A claims, the mortgage is paid off, so why have separate cover for person B to cover the mortgage?
The £100 each quotes seems excessive from the OP. However no-one can say how much it should cost as we don't know how much your mortgage is! The fact that you have given us a cost each suggests to me that there is also cover over and above the mortgage in there. The adviser should have explained clearly what is covered. If not, don't use them!
As to whether or not critical illness cover is worth the paper it is written on, well I guess that depends on whether or not you get seriously ill!
Most modern ones have the following 'catch alls'...
- diagnosed with less than 12 months to live through any cause
- doctor deems you unable to do a job similar to yours (i.e. office based job) permanently through any cause
They also tend to cover life (i.e would pay out if you were to die) as well for no additional cost.
Also look out for children's critical illness cover. Alot of policies include it for free whereby if a child of the insured gets any of the listed illnesses a payout equal to half the sum assured amount is paid out. Most commonly claim illness is meningitis, but thankfully it is still relatively rare.
Of all claims made, approximately 80% are for cancer or heart attack, so I would make sure that these are covered. Try to get as many illnesses covered as possible, but bear in mind that the rest are relatively rare. I would say the features of the policy are more important that the list if illnesses covered.
When looking at cost, bear in mind that 1 in 3 policies are claimed on. The chances of someone getting a serious illness before the age of 65 are quite high, but thankfully most people, after a period of adjustment get better and carry on with life. The policy is simply designed to make that period slightly more comfortable by providing a lump sum that can be used to give you more financial options and less financial worry.
Permanent health insurance is a different type of policy. It pays an amount per month (usually up to a third of your wages) for any time you are off work. Most people use it to pay council tax, keep the kids in clothes and all the other boring stuff that still needs to be paid for.
It 'kicks in' after a set number of weeks. For example, a 13 week policy only starts paying 13 weeks after you start being off work. The ideal is to have it start when your work would stop paying you sick pay. The longer this 'deferment period' is, the cheaper the cover is.
This type if policy does not cover unemployment but does provide cover up until the age of 65 if needed. So if you had a problem at 35 that meant you could never return to work it would pay out until the age of 65, when you would have retired anyway. Accident, sickness and unemployment (ASU) policies would pay out for a set period, usually one or two years and then would stop. This is why they are cheaper.
I would seriously suggest that you speak to someone who asks you questions about your debts, your earnings, your budget etc. They should then be able to recommend cover for you and explain what it covers.
Unfortunately there are a lot of advisers who do not understand the products fully themselves and so sell unsuitable products.
In my experience a lot of mortgage advisers are not very good at selling these products as they see them simply as a bolt on policy that generates extra commission. A mortgage adviser is rarely trained in the details of the policies and when they should be recommended. I'd just like to point out that that is not true of all mortgage advisers, but certainly some of them!
At the end if the day, speak to a few advisers and go with your gut instinct. Which one asked you appropiate questions, listened to the answers and explained the policies fully?
Please don't not take out any cover for the simple reason that you don't understand what you are being offered and what it would do for you if something went wrong.
Hope that helps to some degree, and am happy to answer any other questions if needed.
Duke.