Should you add Serious Illness Cover?

First thing to note is that mortgage protection cover is simply a life insurance product. It will pay out on death only and is usually the cheapest policy available which is acceptable by the lender to drawdown your mortgage.
Often sales advisors in banks will offer you serious illness cover as an add-on to your mortgage protection. Of course this will drive up your premium but as a result will bulk up your cover. In addition to the insurer paying out a benefit in the event of your death, they will also pay out a benefit in the event of your being diagnosed with one of their listed serious illnesses.

On the face of it this is a desirable outcome of having insurance but my feelings on this are simply that while having serious illness is a good thing, I would always make my clients aware of where that payment would go in the event of them claiming.

The key point here is that your mortgage protection is required by your lender and crucially legally assigned to your lender. That means they own it. You pay the premium, they own the benefit. The insurer, should there be a claim on the policy, must pay the benefit to the legal owner of the plan and in the case of it being mortgage protection with serious illness attached means that the serious illness payment will not land in your bank account but the lenders bank account.

It will be used to reduce your mortgage of course but this misses the point. If you have serious illness cover it is designed to be used to assist you in the immediate aftermath of being diagnosed with a serious illness. It is designed to cover cost of living expenses, medical bills, home amendments and the like. If it reduces your mortgage from €300k to €250k it doesn’t do what it meant to do. Yes it will reduce your monthly payments but clients find it incredible frustrating knowing they had serious illness cover in place but they can’t have the cash.
My advice is to address the need specifically.

Take out a basic mortgage protection policy to assign to your lender. Shop around, or use an independent advisor to shop around for you.

Separately take out life insurance, income protection and serious illness cover. Again shop around as each provider will tell you they are the best.

This is designed to protect you and your family. There will be no need to assign these insurances meaning that crucially should you need it, there will be no surprises. You’ll get the benefit you paid for and there will be no one in the middle between you and the insurer when it comes to making a claim.

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