What is terminal illness benefit and is it the same as critical illness cover?

14 min Read Published: 21 Jul 2021
What is terminal illness benefit
What is the difference between terminal illness benefit and critical illness?

In this article we explain what a terminal illness is, what is covered under a terminal illness benefit on a life insurance policy and the difference between terminal illness benefit and critical illness cover. We also reveal the best and cheapest way to buy life insurance and critical illness insurance.

What does terminally ill mean?

A terminal illness is a disease or condition which cannot be cured and is likely to lead to death. Someone living with a terminal illness will often receive treatment and care which primarily focuses on managing symptoms and maintaining quality of life.

Terminal illness examples?

Below is a list of common terminal illnesses:

  • advanced cancer
  • lung disease
  • advanced heart disease
  • dementia (including Alzheimer’s)
  • motor neurone disease
  • neurological diseases such as Parkinson’s

What is terminal illness benefit?

Terminal illness benefit is an insurance policy, usually provided as a free benefit or 'bolt on' when you buy life insurance. The policy pays out upon diagnosis of a terminal illness, rather than waiting to pay out after the death of the policyholder. The earlier payment ensures that the policyholder can make plans while they are still alive and ensure that their dependents will be looked after financially.

Terminal Illness - dictionary definition

A disease or condition which cannot be cured and is likely to lead to death. Someone suffering a terminal illness could live for days, weeks, months or even years in some cases.

Terminal illness benefit - insurance company definition

Terminal illness benefit is paid upon diagnosis of a disease or condition which cannot be cured and is likely to lead to death. The insurance company's medical officer would need to see medical evidence confirming the diagnosis. Crucially, the medical officer would need to be satisfied that death would occur within 12 months. (6 months with some insurers - make sure you check your policy terms and conditions).

When will terminal illness benefit not pay out?

Terminal illness benefit will not pay out if you do not meet the definition of a terminal illness claim as set out in your policy terms and conditions. Most life insurance companies require a confirmation from a medical consultant that the insured person is unlikely to survive beyond the next 12 months.

There can be difficulty in finding a consultant who, even when someone is gravely ill and unlikely to survive beyond 12 months, will confirm this in writing. This creates a difficult situation for the consultant, the terminally ill policyholder and the life insurance company. The life insurance company, Guardian has improved the terms and conditions of a terminal illness benefit by offering a payout for all cases where the policyholder is diagnosed with  incurable stage 4 cancer, motor neurone disease, Creutzfeldt-Jakob disease or Parkinson-plus syndromes. These conditions are usually terminal and the diagnosis is enough to warrant a payout with Guardian, removing the need for a consultant to predict life expectancy and making this a better proposition in the market.

A Terminal Illness payout is in fact an early death payout.  In essence, the insurance company is paying out what they would otherwise have paid out upon death because they can see that death is likely within the term of the policy.  Once you understand this, you can appreciate why insurers historically excluded a terminal illness payout if the person insured received their terminal illness diagnosis in the last 12-18 months of their policy term.  If a terminal illness diagnosis was made in the last 12-18 months of the policy then death could happen after the policy term had ended.

For this reason, terminal illness benefit was normally excluded in the last 12-18 months of a policy term. This slightly, contentious exclusion clause has been removed by all providers for new policies.  However, an existing policy may still carry it and you should check your policy for whether it exists.

Someone who has been diagnosed with a terminal illness could theoretically be refused a payout (on the terminal illness benefit on their life insurance policy) if they are expected to live for more than a year. That said, as the life insurance company will still have to pay the benefit upon death, they will often still pay out on the terms of the terminal illness benefit, so long as it is clear that the policyholder will die before the end of the policy term. Contrary to popular belief, insurance companies do not want to decline claims as rejected claims negatively impact their claims statistics, making them a less attractive proposition for new customers.

Do all life insurance policies include terminal illness benefit?

Yes. Most life insurance companies offer free additional terminal illness benefit when you buy a life insurance policy. When you receive a quote you should check that it states something like 'Life insurance with terminal illness cover'. If your quote doesn't clearly state that terminal illness benefit is included then query it. If it is not included then you should look elsewhere; there will be another insurer that will be willing to offer it and it shouldn't cost you much more. We explain later in this article how to get the cheapest and best life insurance quotes.

Why do you need terminal illness benefit?

For all policyholders except those who have arranged their life insurance to pay for inheritance tax, terminal illness benefit will allow them access to a payout during their lives.  This money could help with making a person's last few months of life more comfortable and remove the stress associated with meeting financial commitments.  Having access to the money will give you options to do anything from pay the bills, pay for care you might need or even taking your family on holiday and making some precious memories.

What is critical illness insurance and how does it work?

Critical illness insurance is an insurance policy that pays out a lump sum if you are diagnosed with one of a set list of critical illnesses (defined by the insurance company) which include cancer, stroke, heart attacks and many more. A terminal illness is a condition that you are unable to recover from, whereas a critical illness is one that you could very likely recover from.

Proceeds from a critical illness policy could help pay your mortgage or rent or they could be used to seek private medical treatment or making alterations to your home. Premiums for critical illness insurance are generally three or four times more expensive than life insurance. Statistics say that you are up to five times more likely to claim on a critical illness policy than a life insurance policy (before the age of 65) and we have provided some statistics collated by Vitality below.

  • 1 in 2 people will develop some form of cancer in their lifetime
  • Every 7 minutes someone will have a heart attack
  • Every 12 minutes someone will have a stroke

We explain more about critical illness in our article Best and cheapest critical illness cover in the UK

Terminal illness benefit is included as a free benefit with most life insurance policies

What is the difference between terminal illness and critical illness?

What is a terminal illness?

A disease or condition which cannot be cured and is likely to lead to death.

What is a critical illness?

A disease, condition or injury (defined by the list of illnesses covered by an insurance company) which can be cured and would not necessarily lead to death.

Critical illness v Terminal illness

We have provided a simple comparison below showing the key differences between critical illness and terminal illness.

Terminal Illness Critical Illness
Claimable whilst living
Included with life cover?
Paid out if life expectancy is 12 months or more

Claiming terminal illness benefit on a life insurance policy

If you have been diagnosed with a terminal illness and have terminal illness benefit on your life insurance policy, you should contact the life insurance company immediately in order to start the claims process.

If you do claim on a terminal illness benefit and do end up surviving longer than 12 months, the insurer will not ask you to pay the money back. Terminal illness benefit will cover both lives on a joint life insurance plan, but will only pay out once.

How do I get the cheapest and best life insurance and critical illness quotes?

Often the best way to guarantee the cheapest life insurance and critical illness quotes is to speak to an independent specialist*. Not only will an independent specialist carry out a comprehensive search on your behalf, but they can also help to complete the application forms and speak to your doctor's surgery should further information be required.

We have personally vetted the services of a specialist insurance broker* that can guide you through every step of the application process and best of all, they guarantee the very best price. The firm enjoys preferential rates due to their size and so they can guarantee to beat any quote, but more importantly, as they are independent, they can offer a personally tailored service and make recommendations based on your own circumstances.

To speak to an adviser, with no obligation to take things further, just fill in the form via the above link.

Summary

  • Terminal illness is a free benefit included with most life insurance policies
  • You can claim on a terminal illness benefit policy if you have been diagnosed with a terminal illness and have been given less than 12 months to live
  • Terminal illness benefit will only pay out once on a joint life insurance plan
  • If you do claim on a terminal illness benefit and do end up surviving longer than 12 months, the insurer will not ask you to pay the money back
  • Critical illness is very different from terminal illness - make sure you know what cover you have
  • Buy life insurance and critical illness cover from an independent specialist* to guarantee the best quotes

 

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