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.

Published May 30, 2023

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What is a terminal illness benefit?

A terminal illness benefit refers to a provision in life insurance policies that offers financial support to policyholders who have been diagnosed with a terminal illness. In the unfortunate event that an individual is diagnosed with a terminal illness and is not expected to live for a specified period, the terminal illness benefit allows them to receive a portion or the entirety of their life insurance payout before their passing.

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 clarify whether this benefit is included or required.

Terminal illness benefit in superannuation

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

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

Frequently Asked Questions and Answers

  • What is a terminal illness benefit in life insurance?

    A terminal illness benefit in life insurance refers to a provision that allows policyholders who have been diagnosed with a terminal illness to receive a portion or the entire life insurance benefit before their passing. It provides financial support to individuals facing a limited life expectancy, offering them the opportunity to utilize the funds while they are still alive.
  • How does the terminal illness benefit work?

    When a policyholder is diagnosed with a terminal illness, they can initiate a claim for the terminal illness benefit with their life insurance provider. The insurer typically requires medical documentation confirming the terminal diagnosis. Once the claim is approved, the policyholder may receive a lump sum or periodic payments, depending on the terms of their policy. This early payment can be used to cover medical expenses, provide for loved ones, or fulfill any other financial obligations or wishes the policyholder may have.
  • Who is eligible for the terminal illness benefit?

    Eligibility criteria for the terminal illness benefit vary depending on the insurance policy and provider. Typically, individuals must meet specific medical criteria, including being diagnosed with a terminal illness that is expected to result in death within a defined timeframe (e.g., up to two years) as confirmed by two doctors. Each policy will have its own specific definition of terminal illness, so it’s essential to review the policy terms to determine eligibility.
  • Is the terminal illness benefit available in all life insurance policies?

    The terminal illness benefit may not be available in all life insurance policies. It is typically included as a feature in certain types of life insurance coverage, such as term life insurance or permanent life insurance policies. However, the availability of this benefit and its specific terms can vary among insurance providers and policy types. It is crucial to carefully review the policy details and consult with the insurance provider to understand if the terminal illness benefit is included in a particular policy.
  • What can the terminal illness benefit be used for?

    The terminal illness benefit can be used for various purposes, depending on the policyholder’s needs and preferences. Common uses include covering medical expenses not covered by health insurance, seeking alternative treatments or experimental therapies, paying off outstanding debts, funding end-of-life care, making necessary home modifications, or simply ensuring financial security for loved ones. The flexibility of the terminal illness benefit allows policyholders to allocate the funds based on their unique circumstances and priorities during a challenging time.

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