Life insurance terminal illness benefit explained

Certain life insurance policies will pay out the amount of cover provided by your policy immediately if you’re diagnosed with a terminal illness.

A terminal illness is one from which, according to a doctor, the sufferer will never recover and that is likely to cause their death within 12 months of diagnosis.

Terminal illness benefit payouts are meant to make it easier for a policyholder to make plans for their families and loved ones, as well as provide funds for use in their remaining months of life.

Once paid, a life insurance policy with terminal illness benefit will make no further payouts after the policyholder’s death - it merely brings forward the payout that would have been made after their death.

Terminal illness benefit is not the same as critical illness cover. The latter is meant to support a policyholder diagnosed with a serious illness that will affect their quality of life, but which won’t directly result in their death.

Making claims

Examples of the kind of conditions that might qualify for a terminal illness benefit payout include Parkinson’s disease, dementia and advanced cancers. However, each life insurer has different criteria for payouts.

Making a terminal illness benefit claim requires providing proof of your diagnosis to your insurer’s chief medical officer. The insurer needs to be satisfied that your death will occur within a given period following your claim - typically 12 months.

If a policyholder doesn’t die within the agreed timeframe after successfully making a claim, they won’t owe anything back to the insurer - but neither will they receive any payouts from the policy after their eventual death.

Some terminal illness benefit claims are turned down if they’re made in the final months of a life insurance policy’s term, that is, the policy is scheduled to end before the policyholder is expected to die.

If you’re diagnosed with a terminal illness and your life insurance cover does provide terminal illness benefit, you’re not obliged to make a claim. You can wait, if you prefer, for the policy to pay out as normal after your death.

However, terminal illness benefit can make things easier in your final months - particularly if you’re unable to work and need your income to pay your mortgage, rent or other commitments. Any money spent during this time will of course mean there’s less to leave behind after you’re gone.

If your life insurance policy is arranged on a ‘decreasing’ basis - that is, it is scheduled to pay out less with each passing year - then your terminal illness benefit will decrease at the same rate. With joint life insurance policies arranged for a couple, insurers will usually only pay terminal illness benefit once, usually as and when the first diagnosis is made.

Some people are eligible for state help if they’re diagnosed with a terminal illness. For more information about support, visit the government’s website.