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Life Insurance with Terminal Illness Cover Explained

Russell Cain
Russell Cain Updated: 20 May 2020

Being diagnosed with a terminal illness is tough emotionally, mentally and physically, but your finances might also take a severe knock. When undergoing treatment for a terminal illness, medical expenses not covered by health insurance start piling up.

A terminal illness benefit is usually automatically included in your life insurance policy, at no extra cost, and will typically pay out the full amount of your life cover or a set benefit, in advance, if your life expectancy is less than 12 to 24 months. However, insurers may require considerable evidence before paying out.

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Does life Insurance cover terminal illness?

Yes, generally if diagnosed with a terminal illness your life insurance policy might pay out in advance when a medical specialist is of the opinion that you’ll pass away within 12 months or 24 months, depending on your life insurance policy requirements. Such a payout will usually cease the policy, and no further payment will be made after death.

If your life insurance policy is bundled with TPD or trauma cover, the terminal illness benefit that’s paid out will reduce the overall cover amount of the combined plans.

What is terminal illness cover in Australia?

Terminal illness cover, also known as an advanced death benefit in other parts of the world, is your once-off life insurance lump sum that pays out to your nominated beneficiaries while you are still alive but expected to die within 12 months after diagnosis. The benefit is to help your family cope with the loss of your income and any medical bills not covered by health insurance.

Take note; A terminal illness benefit is not the same as a critical illness benefit.

Critical illness vs terminal illness cover

The most significant difference is that when diagnosed with a critical illness, you’re expected to recover, while a terminal illness benefit will not pay out if you were to make a recovery following a diagnosis.

Critical illness cover

Also known as trauma insurance and can be purchased with your life cover policy or as a stand-alone. Pays a lump sum benefit when diagnosed with one of the dread diseases listed in the insurer’s product disclosure statement (PDS), for example, cancer.

Terminal illness cover

Generally, automatically included as part of your life insurance policy and only pays out if it’s certified by a medical specialist that your illness cannot be cured and that you have less than 12 months to live.

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Why is a terminal illness benefit with life insurance necessary?

When receiving a life-threatening diagnosis, you should be concentrating on yourself and your family, not be worrying about money matters.

Finding your financial footing amidst the turmoil can be considerably more manageable if you have a life insurance policy with a terminal illness benefit. Such an advanced lump sum payment can help cover the costs of:

How to lodge a terminal illness insurance claim?

To make a valid terminal illness claim, you’ll generally have to provide the following:

Often, an insurer might request a second opinion from an independent medical specialist to confirm you have less than 12 months to live.

Frequently asked questions

  • How much will terminal illness insurance payout?

    The amount that will be paid depends on how much cover you purchased and your chosen life insurance company. They might pay the full life cover benefit or a set amount. Carefully review your PDS to determine the terminal illness lump sum benefit.
  • Do I have to use this benefit?

    No, you are not obliged to lodge a terminal illness claim if you’re life expectancy is less than 12 months. The choice is entirely yours. If you’d like some clarification regarding any of the terminal illness life policy terms and conditions, please speak to one of our consultants..
  • Can you access your superannuation benefit when terminally ill?

    According to APRA, yes super benefits can be released if you’re diagnosed with a terminal illness and two registered medical practitioners, one of whom should be a specialist on your medical condition, certifies that you are likely to pass away within 24 months.
  • Do you have to repay the benefit if you survive?

    No, usually you will not have to pay back the terminal illness payment if you’re still alive after 12 months. However, your policy will end after the benefit has been paid and no further claims can be lodged.

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