Terminal illness

What is a terminal illness benefit?

Terminal illness insurance is generally available as an option with your standard life insurance policy and provides a benefit when you're diagnosed with a terminal illness and not expected to live for more than 12 months.

How is terminal illness insurance different from critical illness cover?

Terminal illness insurance is different from critical illness insurance but the two terms are often used interchangeably.

  • Critical illness insurance. Critical illness cover (also known as trauma insurance) can be bought as either a standalone product or as part of your life insurance policy. The policy will provide you with a lump sum payment if you're diagnosed with any one of the critical illnesses listed in the policy document. These policies generally include caveats such as the insured must live for minimum number of days after being diagnosed, generally 20 to 30 days, before a benefit will be paid.
  • Terminal illness insurance. A terminal illness benefit is not available as a standalone product. It provides you with a benefit when you've been told that you have a maximum of 12 months to live.

Honesty is the best policy

When applying for life insurance the insurance company will factor in your age, health employment, environment, an other activities, in order to be able to arrive at the correct premium for you to pay. It is vitally important that you be extremely honest in answering all these questions as if you fudge any area at all it could mean that when the time comes to make a claim it will be declined because of some earlier dishonesty.

Most life insurance companies use similar guidelines in arriving at the correct premium to charge you for basic life insurance and any additional benefits you might want to add, such as terminal illness cover. For this reason you should be wary if a company offers you a rate that is much cheaper than the others. High risk policy holders will have to pay more than a policy holder who is considered a low risk and it might be that a certain quote might be lower than another because some questions were answered differently. In this case you might finish up paying all your premiums diligently over many years, only to find when the time finally arrives that you have reason to make a claim, your claim not being approved because of you not being entirely honest when making application many years ago.

If you smoke or have smoked in the past be honest about it.

The high risk category of policyholders will include people who have some hereditary illness history in their family background, if this is denied when you make application for cover it will become obvious if you, in later years, happen to contract that illness. If you smoke or have smoked in the past be honest about it even if you have ceased at the time of applying for the insurance, as it will come out if you were to be diagnosed with emphysema in later years. If you are a miner or have worked in a stone quarry you must say so in case 30 or 40 years into the future you come down with silicosis. Your recreational activities are equally important as is your right age.

Few life insurance policy premiums increase over time therefore the price you pay for the policy taken out now will last for the term of the policy. Bargains may only be short term advantages anyway as ongoing inflation will lower its costs over time. If you smoke your premiums will be affected so you will have to live with it, especially as most companies simply ask, "Have you used tobacco during the last 12 months?" If you answer "yes"' they will see this as a potential threat to your life and your premium will be increased.

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Richard Laycock

Richard is the senior insurance writer at finder.com.au and is on a mission to make insurance easier to understand.

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