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Posted on March 15th, 2012 in All, Critical Illness Insurance. When you take out a mortgage it is a big financial commitment. Whether you apply for a mortgage in your sole name or as a joint applicant if you or one of you lost your income due to a critical illness then still paying the mortgage can be a struggle. For this reason many mortgage holders take out life and critical illness insurance to protect the mortgage. The majority of people these days will take out a repayment mortgage. With a repayment mortgage the debt that you owe decreases throughout the term. For this reason the sum assured on a mortgage critical illness policy also decreases. Normally the insurer set the interest rate that the cover will reduce at. Typically this will be around 10% although some insurance companies let you you change this amount. Therefore someone who takes a mortgage on a 25 year term for a £100,000 mortgage should take life insurance for the same amount on a decreasing basis. The term of the mortgage critical illness insurance should match the term of the mortgage, in this case 25 years. With a joint policy normally there is no need to write the policy in trust. However in some cases in particular if the two applicants have dependants then they might be better taking 2 single life policies instead of 1. The cost of this is not much higher than a joint policy. However both plans include an element of Children’s Critical Illness Insurance and therefore you can ultimately double the amount of children’s critical illness cover given for a small amount of extra premium. The image below illustrated how the debt on a 25 year mortgage reduces. A mortgage protection critical illness insurance policy is also sometimes referred to as a decreasing term policy. This type of reducing sum assured is only suitable for a repayment mortgage. If on the other hand the applicant has an interest only mortgage that they are looking to repay through ISA or pension savings then a Level Term Critical Illness Policy is better suited. A level term critical illness policy will not reduce and thus will always pay off the interest only mortgage amount as the debt on these mortgages does not reduce.