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You will often see terminal illness benefits included as standard on life insurance policies, typically at no extra cost. It’s there to help with the financial burden of falling seriously ill, recognising that people may need financial support in the final months of their life.
What is a terminal illness benefit?
Many life insurance policies include a terminal illness benefit. This is a feature that allows the policyholder to claim early if they are diagnosed with a terminal illness.
If the claim is accepted, the insurer will pay out the sum assured early, and this replaces the death benefit. Once it's paid, the policy ends, and nothing more is paid when you pass away.
The money can be used however you wish. For example, it might be used to get your financial affairs in order, such as paying off the mortgage and any other debts. Or it may be used for private care, or perhaps for making special memories with your family.
Please note that critical illness cover is a different type of benefit. This pays out if you're diagnosed with a serious condition (like some cancers) but not necessarily terminal. Some policies include both while others don’t, so it’s important to check.
What is a terminal illness in life insurance terms?
In insurance terms, a terminal illness typically means a condition that doctors believe will lead to the person passing away within 12 months. Some companies may work to a different time frame.
It may be a condition that has no known cure, or one that has progressed such that doctors believe that it cannot be cured. Examples might include late-stage cancer, advanced motor neurone disease and certain types of organ failure.
Companies may differ in terms of whose medical opinion they look to, such as a hospital consultant and/or the insurer’s own medical officer. There may also be certain additional terms or exclusions, so do check the wording of a policy you have or are looking to take out for clarification.
Can you buy life insurance after being diagnosed with a terminal diagnosis?
Most insurers would typically decline an application if you’ve already received a terminal diagnosis. The reasoning is simple: life insurance is designed to cover unforeseen future risk, not known, imminent events.
There are some exceptions, however. Certain ‘no medical’ policies, also known as ‘guaranteed acceptance’ policies are available with no medical questions being asked and no medical reports. Examples include over 50s plans and funeral plans.
However, these policies may come with a ‘waiting period’. This means that the policy won’t pay out if the policyholder passes away before a set time, such as 12 months. Also, these policies tend to be quite limited in terms of the maximum amount of cover you can get.
Final thoughts
Life insurance can provide comfort and financial support at one of life’s most challenging moments. If you're diagnosed with a terminal illness, knowing that you and your loved ones can benefit from terminal illness benefit might bring some welcome financial support.
Please always read your policy documents carefully and speak to your insurer, broker or adviser if you're unsure about anything.