Terminal illness benefit is a feature of some life insurance policies. It pays out the ‘sum insured’ (the amount of cover provided by the policy) when a policyholder is diagnosed with one of a list of terminal illnesses.
This benefit is included with or added to ‘term’ life insurance, where the policy lasts for a stated number of years.
A terminal illness is one from which, in the opinion of medical experts, the sufferer will never recover, and one which is likely to result in their death within, say, 12 months. The idea of terminal illness benefit is that a policyholder can use the pay-out to make plans and take care of their dependents before their death.
Once the benefit is paid, however, there will be no further payments on the death of the policyholder.
It differs from critical illness cover, which pays out when a policyholder becomes ill with a condition that can be cured and is unlikely to result in their death in the immediate future.
Terminal illness benefit is included as part of many life insurance policies, but some insurers offer it as an optional extra for an additional fee.
Claims and pay-outs
Parkinson’s disease, advanced cancers and dementia are examples of the kinds of conditions that terminal illness benefit might cover, but each insurer has specific criteria about what constitutes a terminal illness and the conditions under which it will pay out.
In order to make a terminal illness benefit claim, a policyholder must provide proof of their diagnosis to their insurer’s medical officer. The medical officer then needs to be satisfied that the policyholder’s death will occur within a given period of the claim being made – usually 12 months.
Terminal benefit pays out the same amount of money illness that the policy would have paid to the policyholder’s beneficiaries upon their death, had they not made a terminal illness benefit claim.
If the policyholder makes a successful claim but then survives beyond 12 months, nothing is owed back to the insurer. However, once a successful claim has been made, there is no additional pay-out when the policyholder dies.
An insurer could refuse a terminal illness benefit claim if it is made in the final months of a policy. In other words, if the policy’s original term is due to come to an end before the policyholder is expected to die, the pay-out may not be forthcoming.
Policyholders diagnosed with a terminal illness are under no obligation to make a claim. If they prefer, they can allow their policy to run on until their death, after which it would pay out as normal. However, terminal illness benefit can help to make the end of a policyholder’s life more comfortable and less stressful if they’re unable to work (or don’t want to) and lose their income.
Those who do make a successful claim should be aware that any money spent during their final weeks and months will ultimately mean less to leave behind for their dependents and loved ones.
For decreasing life insurance policies, where the sum insured goes down over time, the terminal illness benefit will decrease at the same rate. For joint policies, most insurers will pay terminal illness benefit only once, usually on the diagnosis of the first partner to develop a terminal condition.
State benefits may be available to those who are diagnosed with a terminal illness. You can visit the government website for more information.
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