In this article, we'll tell you everything you need to know about terminal illness cover. We'll explain which illnesses are covered and which are not. We'll also look at some of the biggest life insurance providers in the UK and compare how they offer terminal illness insurance. Let's get started.
People purchase life insurance to provide financial support for their loved ones if they pass away. However, many people don't know that most life insurance policies pay out a lump sum if you are diagnosed with a terminal condition with a life expectancy of around 12 months.
We call this terminal illness cover, designed to make your final months slightly more bearable.
Terminal illness cover is a standard feature of most life insurance policies. It is not typically offered by insurers as a standalone product.
If your life insurance policy offers a terminal illness benefit, you'll be able to make an early claim on your policy if you're diagnosed with an incurable illness with a life expectancy of 12 months or less.
Your insurance company may operate a list of terminal conditions that are covered. They will be contained in your life insurance policy documents. There may be slight differences between insurers around what illnesses are covered.
If you make a successful claim, your insurer will pay out your life cover lump sum, after which your policy will expire. Of course, if you live longer than 12 months after the payout, you don't have to give the money back.
One of the differences between terminal illness cover and life insurance is that you're still around to receive the lump sum. Most policyholders use this payout to ease the financial pressure on their families at an incredibly difficult time. Alternatively, they may use it to pay for medical treatment.
When you buy life insurance, terminal illness cover is typically included in the policy as part of the package. But how does it work in practice?
For the purposes of life insurance, a terminal illness is considered to be a condition that is incurable and predicted by medical experts to result in you passing away within 12 months.
There may be slight differences between insurers around which conditions are covered by the terminal illness benefit, but there are some that should be covered as standard:
Cancer accounted for 92% of terminal illness claims with Legal and General in 2022. - Source
Make sure you check your life insurance policy documents so you know which conditions are included in your terminal illness cover.
If you’re diagnosed with a terminal illness - and you have terminal illness cover as part of your life insurance policy - you can make a claim to receive your lump sum payment.
Your insurer will likely demand to see proof of your diagnosis. A letter from your doctor should suffice, although in some cases, they may ask you to undergo an examination from a consultant.
Assuming you can provide proof that you have less than 12 months to live -and your condition is covered by your insurance company - you can proceed with your terminal illness claim. The time it takes to receive your payout varies by insurer, but you should have it in less than three months.
Some life insurance companies have clauses in their policies that you can’t make a claim on your terminal illness cover if you have less than 12 months before your policy expires. Make sure you check your policy terms and conditions.
After you receive your payout from your terminal illness cover, your life insurance policy expires and you can make no further claims.
In 2023, the Financial Conduct Authority (FCA) conducted a review of terminal illness insurance to ensure companies are treating their customers fairly at a time when they’re extremely vulnerable. It was assisted by the Financial Ombudsman Service.
The FCA found that while there is room for improvement in customer service throughout the industry, companies generally followed good practices, particularly in the speed at which they handle claims. They found no significant evidence that insurers were unreasonably declining terminal illness claims.
This is reassuring if you hold terminal illness cover as part of your life insurance. If the worst happens and you contract a serious condition with no known cure, you can expect to be treated well as you apply for your early payout.
Having terminal illness cover as part of your life insurance policy can provide a wide range of benefits.
If you make a successful claim, you could use the money from your payout to help you:
Like life insurance, you could use your terminal illness benefit to provide financial security for your loved ones after you’ve gone.
Alternatively, you could use it to do something amazing during the remaining time in your life - a big holiday or party, for example.
Terminal illness cover cover allows you to achieve peace of mind. Even when you’ve received the worst diagnosis imaginable, you can still support the people most special to you.
When you first take out your life insurance policy, you’ll probably be offered critical illness cover as an add-on. It’s important to know that critical illness cover and terminal illness cover are not the same.
Critical illness cover is a different type of insurance that pays a lump sum if you’re diagnosed with a serious illness, but one that you’re likely to recover from. Such a diagnosis could include a heart attack, less aggressive forms of cancer or a serious injury.
Critical illness cover policyholders may use this money to:
Critical illness cover is available from your insurer as a standalone product, or you can add it to your life insurance policy. Depending on your policy wording, claiming on your critical illness cover may give you a portion of your life cover payout, but not cause your life insurance policy to expire.
Because terminal illness cover comes as standard with most life insurance policies, the process for getting terminal illness cover is the same as life insurance cover.
If you have already been diagnosed with an incurable terminal illness with a life expectancy of 12 months or less, you will not be able to get life insurance cover with terminal illness cover included.
This is because it’s a near certainty that the insurer will have to pay out, which makes it too much of a risk for them.
If you’re aged between 50 and 85, you will be able to get over 50s life insurance. Acceptance is guaranteed and you won’t be expected to provide any medical information.
However, if you have a terminal illness with fewer than 12 months of life expectancy, this is not recommended.
These types of policies always have a waiting period of between 12-24 months, so you cannot make a claim if you pass away during that time. Your loved ones may receive your premiums back, but no lump sum payment.
Finally, let's look at ten of the top life insurance providers in the UK and examine the terminal illness insurance products they offer.
Disclaimer: This information is general and what is best for you will depend on your personal circumstances. Please speak with a financial adviser or do your own research before making a decision.
Mike is a personal finance copywriter who has written for numerous financial services publications and websites over many years.
