Terminal Illness Benefit for Life Insurance

A terminal illness can have can have devastating financial and emotional implications for you and your loved ones.

A terminal illness benefit is generally automatically inlcuded with your life insurance policy. It accelerates the payout of your life insuranc benefit to you or your beneficiaries if you are diagnosed with a terminal illness and not expected to live for more than 12 months to 24 months.

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What is a terminal illness benefit?

If you are diagnosed with a terminal illness, you could have your full life insurance benefit paid to your beneficiaries before you pass away.

How does this benefit work?

To receive the benefit, two medical specialists will need to confirm the diagnosis and a claim will need to be submitted to your insurer. Your insurer will also need to agree with the diagnosis and may request you undero a Independent Medical Examination (IME). Once you have received your benefit, your policy will end.

Take note: If you have a life insurance policy that is combined with trauma or TPD insurance, the benefit paid out will reduce the cover amounts on the policies that are linked.

What is considered a terminal illness?

A terminal illness is generally defined as ‘The diagnosis of an illness which in the opinion of a medical specialist is likely to result in your death within the next 12 months to 24 months (depending on your porduct disclosure statement), regardless of any further treatment.

For a terminal illness insurance payout to be valid, the medical specialist’s opinion will need to be based on clinical findings and reports. Often  a second opinion from an independent medical specialist is also required.  You will also need to meet all other policy terms and conditions.

Do you have to use this benefit when terminally ill?

You are not obligated to use this benefit, but it is available at your discretion. Please speak to one of our consultants to provide you with clarification regarding whether this benefit is included or required.

Terminal illness benefit in superannuation

According to APRA, the certification for the release of terminal illness superannuation benefits is 24 months from the date of certification. Certification requirements include:

  • Two registered medical practitioners have jointly or separately certified that you’ve incurred an injury or suffer an illness that is likely to result in your death within 24 months.
  • At least one of the medical practitioners must be a specialist practising in the area related to your illness or injury.
  • The certification periods from the two medical practitioners has not ended.

Generally, your terminal illness benefit can be accessed as a tax-free lump sum payment during the certification period.

Published: August 15, 2019
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