How do terminal illness and critical illness insurance cover differ?
When you think about terminal illness cover and critical illness insurance, they sound similar, but there are key differences. A terminal condition will likely result in death, while you could recover from a critical illness.
Here we discuss what a terminal illness is, how terminal illness cover works, and the differences between terminal illness benefits and a critical illness policy.
What is the definition of terminally ill?
A terminal disease is a medical problem that cannot be cured and usually leads to an early demise. People who live with a terminal ailment may be treated for their symptoms and given a treatment plan to maintain their quality of life. People who are terminally ill could survive for a few days, several months, or a few years.
List of common terminal illnesses
Here is a list of common medical conditions that are terminal:
- Many types of cancer
- Alzheimer’s and dementia
- Advanced lung, kidney, heart attack and liver disease
- Motor neurone disease
- Parkinson’s disease
- Huntington’s disease
What is terminal illness insurance?
A terminal illness benefit allows you to receive a payout if you are going to die from an illness or disease. This cover is usually included with your life insurance policy, and you can claim when a doctor certifies you have between 12 and 24 months of life left.
Getting an early payout of your life insurance through a terminal illness claim gives you the financial capacity to support the rest of your life and reduce stress at a challenging time.
How does an insurance company define terminal illness?
Your life insurer will likely pay a terminal illness benefit when you have been diagnosed with an incurable illness, disease, or medical condition. To be successful, you must submit medical proof of your diagnosis to your insurance company. You will receive a payout when you have confirmed evidence of your demise within a 12 to 24-month period (depending on your policy).
When do insurers refuse to pay a terminal illness benefit?
Your terminal illness insurance claim will fail when you do not fit the definition outlined in the terms and conditions of our policy. Most Australian insurers need evidence that you will not survive beyond 12 months.
Sometimes it can be challenging to have a medical professional confirm your diagnosis. Of course, some conditions are so severe they are rarely challenged by insurance companies, such as:
- Stage 4 cancers
- Motor neurone disease
- Creutzfeldt-Jakob disease
- Advanced Parkinson’s
Medical ailments that commonly result in death are likely to result in a successful insurance claim, and in these cases, your doctor may not need to estimate your life expectancy.
What is a terminal illness payout?
A terminal illness payout is, effectively, an early demise payment. In effect, the insurer is releasing funds they’d typically pay upon dying because they know that your death is likely during the term of your policy.
If you have an incurable diagnosis within 12 to 18 months of the end date of your life insurance policy, then it will be more difficult to claim. The insurer will likely believe you could live past this period when your policy expires. Some life insurance products might contain an exclusion clause for terminal illness claims close to your policy expiry date. So please check your terms and conditions.
It is only sometimes in the insurance company’s best interests to refuse an early payment. Once you have died, they will need to pay out your policy regardless. Rejecting early life insurance claims damages their performance stats, which are likely to be reviewed by potential new customers.
Are terminal illness benefits included in all life insurance policies?
Most Australian life insurance policies contain a terminal illness benefit. When purchasing life insurance, please check that it includes this cover. It doesn’t cost any extra, so it is worthwhile taking the time to be sure.
Why have terminal illness cover?
Unless you have organised your life insurance to fund inheritance tax, your early life insurance payout will give you the resources you need to enjoy your final period of life. These funds protect against financial hardship, providing a comfortable existence, and reducing your anxiety about paying bills and other commitments. You might even take a cruise or other travel in the final months of your life.
When does Critical Illness Cover pay out benefits?
A Critical illness plan is a type of insurance coverage that helps you financially when you become ill with a critical condition specified in your t’s and c’s. A terminal illness is one that will lead to your early death, whereas you could recover from a critical ailment diagnosis.
The funds you receive from a critical illness policy might assist with your rent or loan payments or pay for specialised medical care. Insurance premiums can be four times that of a standard life insurance policy for these types of plans. According to insurer statistics, people with a critical illness plan are five times more likely to claim those who purchased life insurance.
It might surprise you that half of the population will develop some form of cancer at some point in their lives. Someone has a cardiac event every seven minutes. Strokes are also prevalent.
How do terminal illness and critical illness differ?
Terminal diseases are those that cannot be cured or treated. They include cancers, chronic diseases, and degenerative disorders. Cover for terminal conditions is usually contained within your life insurance policy and pays out benefits after the insured person’s death. Alternatively, you could access your insurance benefit early with a terminal diagnosis.
Critical Illness Insurance (CII) protects against catastrophic medical expenses for an annual or monthly premium. CII policies pay out benefits when you or your dependents suffer from life-threatening conditions such as cancer, heart disease, stroke, diabetes, etc. Your payout amount relies on the severity of your state and the length of time the insured person has suffered from it.
Terminal illness versus Critical Illness
Below we’ve provided a simple comparison comparing critical illnesses and terminal illnesses.
|Terminal Illness||Critical Illness|
|Claim while alive||yes||yes|
|Include with life insurance||yes||no|
|Paid when you are expected to live 12 months or more||no||yes|
What are the advantages of terminal illness cover?
- You and your loved ones can avoid financial crises by making an early life insurance claim.
- You can access funds to manage your medical condition
- You get financial support when you cannot work due to your medical ailment.
What are the advantages of a critical illness insurance policy?
- You get a lump sum payout of your benefits at a critical time of your life. Your condition must be one of a list of illnesses defined by your insurance policy.
- You have financial support for specialised medical treatment and care.
- Your insurance payment could be tax-free.
What if I am paid a terminal illness benefit and survive?
When your medical professional diagnoses you as terminally ill, you must lodge an insurance claim immediately. It could take several months to have your case approved, and you could have just months to live.
In most cases, the insurance company will not request a repayment of your benefit if you have lived past 12 months. If you have joint life insurance coverage, the terminal illness component will apply to both people but will only pay out once. That amount will be for the insurable death benefit figure.
Key Points for Terminal Illness vs Critical Illness Cover
- Life Insurance includes a free terminal illness benefit.
- You may be eligible for life insurance benefits if you’ve been diagnosed with a terminal disease and told you have less than 12 months left to live.
- A terminal illness policy will only payout once for a joint life insurance policy.
- You won’t have to repay any benefits if you survive for more than 12 months.
- Critical illness insurance plans differ substantially from terminal illness coverage, so please be sure of your policies.