What does Terminal illness cover actually mean?
Most life insurance policies which are commonly used to protect people’s mortgages or to protect their families include a benefit known as terminal illness cover. This means that a policy which includes terminal illness benefit will pay out the sum assured if the policy holder is diagnosed with a terminal illness. In the case of most policies, it usually means that the policy holder has been told that they have a life expectancy of less than 12 months.
This of course all seems very straight forward. If I was to take out a life policy it will pay out the sum assured if I was to die within the term of the policy, or if I was told by my GP and / or a consultant that I have an illness which means that I will pass away within the next 12 months. However the devil is in the detail.
One of our roles as expert advisers is to be able to differentiate between one Insurer’s policy and another’s. We have access to at least 10 major insurance companies and have just completed a study on each of their terminal illness terms and conditions.
Watch out for the small print.
Most life insurance policies which were arranged before 2013 will not pay out if the terminal illness diagnosis is made in the last 12 months (and in some insurers cases, the last 18 months) of the policy.
There are still 3 major Insurers who will not pay out if the terminal illness diagnosis is made in the last 12 months of the policy. The good news is the majority will pay out if the diagnosis is made at any stage during the policy (even if this was in the last week of the policy’s term).
How could this effect me?
So what does this mean in reality? Well of course the older we get, and therefore the nearer we get to the end of the term of a life insurance policy, it seems to me, the more likely we are to be given this type of news by our GP. Therefore if the policy holder has a life policy that excludes paying out terminal illness benefit in the last 12 or 18 months, the more likely they are not to receive the benefit that they may have believed that they would be entitled to. This could lead to an unsuccessful claim, at a time when the policy holder is gravely ill, and is expecting (rightly or wrongly) to receive a lump sum when they have potentially been paying premiums to the insurance company for many years.
Of course, they should have been told about the terms and conditions when they arranged their policy and 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 small print.
What could you do about this?
Firstly check your policy documents to understand the terms and conditions for your policy. If you are unclear, it may well be worth calling your insurance company for clarification. If you are unhappy with the explanation, the next stop could be to call an impartial specialist who should be able to explain the terminal illness terms and conditions for each insurance company.
If you are thinking about reviewing your life insurance policy, or if you are thinking about taking out a new life policy, ask the question about terminal illness cover, and whether you 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, and it’s not just about the cost of the cover, although I frequently find that the policies offered by the two insurers who offer terminal illness cover to the end of the policy, are as competitive as those insurers who do not. Either way a good advisor will explain the cover differences as well as the cost of the cover and then at least you will be fully aware of the contract that you are entering into.
Whilst you are welcome to get a quote on-line we would recommend you talk to one of our advisers.
Any quote that your adviser provides you with will take into account to your circumstances, your medical history, as well as your budget!
An on-line 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.
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