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

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 how to buy the best and cheapest life insurance and critical illness insurance and get up to £100 cashback*.

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 their quality of life.

Terminal illness examples?

Below is a list of common terminal illnesses:

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

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What is terminal illness benefit?

Terminal illness benefit is an insurance benefit that is usually included within life insurance and allows the policyholder to make an early death claim if they become terminally ill. Terminal illness benefit is usually included with your life insurance at no additional cost but not all policies offer it and some policies will vary in the definition of terminal illness.

Terminal illness benefit pays out upon diagnosis of a terminal illness or if the insured person meets the definition of a terminal illness claim as per the insurer's terms and conditions. Usually, a terminal illness insurance claim will be paid if a medical consultant deems that the insured person has a life expectancy of less than 12 months.

An early death payment through a terminal illness claim allows the policyholder to make financial provisions for their remaining life and beyond, minimising any financial stress at a time when it is likely that they and their family will require support.

Terminal Illness - dictionary definition

A disease or condition which cannot be cured and is likely to lead to death. Someone suffering from 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. Most life insurance policies will pay for terminal illness if the insurer's chief medical officer is presented with enough evidence to suggest that the insured person is unlikely to live for more than 12 months. 

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 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 1821 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
• 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?

Not all, but most life insurance companies offer free additional terminal illness benefits 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 should be included at no extra cost. 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, a terminal illness payout could ease financial stress brought on by a grave illness. Having the flexibility to claim your death benefit whilst living could help you to focus on the quality of your remaining life.  This money could help to make the 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 paying the bills, paying for care you might need or even taking your family on holiday and making some precious memories. If the life insurance was arranged to pay off your mortgage, you may still wish to do this so that your family are relieved from the burden of monthly mortgage payments.

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 an illness that is covered by the terms of your insurance. Illnesses that qualify for a claim are usually very serious but can be survivable. Common critical illnesses that can result in a claim include cancer, heart attacks, stroke and many more.

In contrast to terminal illness benefit, for a critical illness claim to be paid, there is no requirement for a medical consultant to confirm that your illness will cause your death.

Although a critical illness may not cause your death, it is commonly the case that it will cause disruption to your health, well-being and finances. You may have to take a period of time off work and you may even have to change your work due to the effects of your illness. Your partner or another family member or friend may have to take time from their work to support you through your illness and you may have to pay for someone else to take care of those who were reliant on your care such as your children or pets. The payout from a critical illness policy could help you pay your mortgage or rent or fund needs that arise from your illness including 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. This the other key difference between terminal illness benefit and critical illness cover - you have to pay more to include critical illness insurance with your life insurance.

Your critical illness may increase the cost of your life insurance by 3 or 4 fold since 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).

Here are some statistics that demonstrate the incidence of illnesses covered by critical illness insurance:

• 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.

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 diagnosis of disease, condition or injury that matches the definition of an illness covered by the insurer which may be cured and would not necessarily lead to death.

Critical illness v Terminal illness

^ This does not apply to life insurance provided by Guardian 1821 as this provider will pay out a terminal illness benefit for certain conditions even if life expectancy cannot be confirmed to be less than 12 months

Claiming terminal illness benefit on a life insurance policy

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

If you do claim a terminal illness benefit because you are diagnosed with an illness that is deemed terminal but you go on to survive 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 and the sum assured is equivalent to the death benefit insured on the policy.

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 life insurance specialist*. Not only will an independent specialist carry out a comprehensive search of life insurance policies from across a number of insurers 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 life insurance broker* where the advisers will 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 its size and so it can guarantee to beat any quote, but more importantly, as it is independent, it 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 at no extra cost - critical illness insurance will cost you more.
• 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 - critical illness insurance does not ask about your life expectancy
• Terminal illness benefit and critical illness benefit will only pay out a full claim once on a joint insurance plan
• If you do claim a terminal illness benefit and end up surviving longer than 12 months, the insurer will not ask you to pay the money back and if you recover from a critical illness you will also keep the cash payout
• Buy life insurance and critical illness cover from an independent personal insurance specialist* to guarantee the best price and advice for your needs

If a link has an * beside it this means that it is an affiliated link. If you go via the link, Money to the Masses may receive a small fee which helps keep Money to the Masses free to use. The following link can be used if you do not wish to help Money to the Masses and do not wish to qualify for the cashback referred to in the article - LifeSearch