Terminal Illness Benefit - how to get your insurance paid out without dying
On modern, good quality life insurance contracts, there is usually an additional benefit – a Terminal Illness Benefit (TIB). This means that the policy will not only pay out the value of the policy when you die (as it is designed to), but it will instead pay the benefit out if you are certified as having a terminal illness.
The reason that this benefit has recently been added to policies (as recently as 1997 a number of companies did not offer this benefit) is to provide financial assistance to ‘sort things out and tidy things up’ prior to death, if required.
While you should expect to have a Terminal Illness Benefit as a standard benefit on your policy, we encourage you to think carefully about why, when and whether you should use the benefit.
Remember the reasons that you put in place life insurance in the first place, to provide funds for your loved ones – after you have died. Also remember that this is a totally separate benefit to any trauma benefit.
Income protection insurance, trauma and total and permanent disablement insurance are designed specifically to provide you with the funds that you need to live off, if you are unable to continue to earn an income because you are injured or ill. These insurances need to be part of your financial strategy, rather than relying on a Terminal Illness Benefit paying out.
Getting a TIB actually paid is not easy. It requires your doctor to acknowledge, in writing that you are likely to die within a specified time period. This is often not a situation that they are comfortable with. An example of actual wording of a TIB clause is:
Terminal Illness of the Life Insured means any illness which, in the opinion of AMP after consideration of medical evidence provided to it by the Life Insured’s own doctor and such other evidence as it may required, will result in the death of the Life Insured within twelve months regardless of any treatment that might be undertaken.
There is no need to have life cover where there is not a Terminal Illness Benefit, or where the payout is limited to a certain percentage of the sum insured, or to a maximum payout, whether you think that you will use the benefit of not.
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By Paul Swarbrick