What is terminal illness cover?
Whilst life insurance typically pays out to your beneficiaries if you die, most policies now also include terminal illness cover as standard.
Having a terminal illness element accelerates the policy pay out, allowing you to receive funds before you pass away.
In order for a pay out to be issued, the insurer will require a ‘terminal‘ diagnosis, from a medical professional in that specific field.
It is commonly accepted that being diagnosed as having a terminal illness, means the policyholder is expected to die within 12 months. However, if you exceed the life expectancy you will not be expected to repay the funds.
Remember, if you smoke you are at greater risk to a wide range of critical, sometimes terminal conditions, such as lung cancer, mouth cancer, a stroke, heart attack and coronary heart disease.
Although common, it is important to remember that not all policies have terminal illness cover as standard and that exclusions can apply.
What is the difference between terminal illness and critical illness?
Although often confused, critical illness and terminal illness cover are two different things.
Understanding the differences between these types of cover is essential to ensure you choose the right life insurance policy.
As mentioned above, a terminal illness pays out if you are diagnosed with a terminal condition and are predicted to die within 12 months.
Whereas critical illness pays out if you suffer a life-changing condition, covered by your policy, which is unlikely to result in death (in the near future).
Although unlikely to kill you, critical conditions impact your ability to work and therefore provide for your family.
The benefits of terminal illness cover
The main benefit of terminal illness cover is that it allows you to access funds before you are gone.
Having access to this money could really help both you and your loved ones. It would mean you would not have to worry about family finances during this difficult time.
Your policy pay out could help you cover:
- A home carer (to make you more comfortable)
- Expensive medical treatment
- A family holiday
- Pay for family/friends to visit
- Necessary adaptations to your home
- Loss of earnings
- Your funeral expenses.
Types of terminal illness include
- Advanced stage of cancer
- Heart failure
- Kidney disease
- Liver disease.
Terminal illness cover in summary:
- Pays out early if you are diagnosed with an illness likely to cause death within 12 months
- Diagnosis needs to be made by a medical professional in that specific field
- If you survive past the life expectancy, you will not be expected to pay back funds
- Once a terminal illness claim has been paid, no further claims can be made
- After the claim is paid you stop paying your premiums and the policy ends
- Most life insurance policies include terminal illness at no extra charge
- The pay out could help fund expensive treatment, loss of your earnings, or a carer
- Some insurers will not pay out if your policy has less than 12 months left
– They will pay out if you die during the term
- If you have a joint policy it will only pay out once, (usually on first death)
- If you have decreasing term cover, the terminal illness benefit reduces over time
- If your policy is written in trust but pays out early, it could be subject to inheritance tax
- Terminal illness is sometimes referred to as ‘accelerated death benefit‘, (especially in the US).
Critical illness cover
- Pays out if you suffer a life-changing illness, which is not likely to result in death
- Common critical illnesses include cancer, stroke, neurological disease and heart attack
- Illnesses/conditions covered can vary from one insurer to another, (please check)
- Can be included as part of a standard life insurance policy or as a separate policy
- Generally, premiums are higher with a critical illness element as the insurer’s risk is increased
- Cancer, heart attack, stroke and multiple sclerosis make up the majority of critical claims, (up to 90%)
- Ensures protection for your dependents if you cannot work/earn
- Could help pay for necessary home alterations, private treatment or a carer
- If you have a joint policy, insurers will only pay out once, (usually on first death).