Terminal illness cover – Why it is important to read the small print
What is terminal illness cover?
Most life insurance policies include a benefit known as terminal illness cover. A policy which includes terminal illness benefit will pay out the sum assured if the policyholder is diagnosed with a terminal illness. (as defined by the insurance company). This means that the policyholder has been told that they have a life expectancy of fewer than 12 months.
This seems very straight forward. If you take out a life insurance policy, it will pay out the sum assured if you are to die within the term of the policy.
Or, if you are told by your GP and/ or a consultant that you have an illness which means that you will pass away within the next 12 months. However, the devil is in the detail.
Terminal illness cover – the small print
As adviser’s, we look at the market and are able to quickly differentiate between one insurer’s policy and another’s. We have access to at least 12 major insurance companies who provide life insurance. We have completed a study on each of their terminal illness terms and conditions.
If they have confirmation from your Consultant and/or your GP that you have less than 12 months to live 11 of the insurers will payout.
However, there is one insurer, who if you are diagnosed with either:
- Incurable Stage 4 Cancer
- Motor Neurone Disease
- Creutzfeldt-Jakob disease
- Parkinson’s-Plus syndromes
will payout even if you are expected to survive for more than 12 months.
An exclusion in the majority of the insurers’ policies state that if you have the policy running they will not pay out within the first 12 months, or their latest restart date if the policyholder dies as a result of their own actions. Many of the insurers also offer free Bereavement counselling.
So what does this mean in reality? The older we get, the closer we get to the end of the term of a life insurance policy. The more likely we are to be given this type of news by our GP.
Therefore, if a policyholder has a life policy that does not pay out terminal illness benefit in the last 12 months, it is likely they will not to receive the benefit they believe they would be entitled to.
This could lead to an unsuccessful claim, at a time when the policyholder is gravely ill and is expecting (rightly or wrongly) to receive a lump sum when they may have been paying premiums to the insurance company for many years.
Terms and conditions
Of course, they should have been told about the terms and conditions when they arranged their policy. The exclusion would have been set out in the insurer’s Key Features brochure and in their policy documents. However this may have been many years ago and the memory fades, especially when it comes to the small print.
What you can do
Firstly, check your policy documents to understand the terms and conditions for your policy. We will be happy to provide clarification if you have any questions or doubts.
If you are thinking about changing your life insurance policy or taking out a new life policy, remember to ask if terminal illness cover will be covered until the end of the term. It may seem like a small point unless you are unfortunate enough to be in this situation when of course it will be a massive point.
Not all life insurance policies are the same. It’s not just about the cost of the cover. We frequently find that policies offered by insurers who do offer terminal illness cover to the end of the policy are as competitive as those insurers who do not. Either way, we are happy to explain the cover differences as well as the cost of the cover. In which case you will be fully aware of the contract that you are entering into.
Whilst you are welcome to get a quote on-line but we would recommend you talk to one of our advisers.
Any quote that your adviser provides you with will take into account your circumstances, your medical history, as well as your budget!
An online quote is just that – a quote – it isn’t a definite offer of cover. What really matters is the premium you are offered, after your application has been assessed.
Call Freephone 0800 644 4468 – Monday to Thursday from 09.00 to 19.00 and on Friday between 09.00 and 17.00.
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*The information regarding insurer’s terminal illness cover was sourced from the current Key Features brochures of: Aegon, AIG Life, Aviva, Canada Life, The Exeter, Guardian, Legal & General, LV, Royal London, Scottish Widows, Vitality Life and Zurich during March 2020.