What is Terminal Illness Benefit?

What is terminal illness benefit?

Terminal illness benefit (also called an accelerated death benefit) is a feature of most UK term life insurance policies that allows you to receive your life insurance payout early if you are diagnosed with a terminal illness and given a life expectancy of 12 months or less.

How does terminal illness benefit work?

1. You are diagnosed with a terminal illness
2. Your doctor certifies that you have 12 months or less to live
3. You apply to your insurer for an early payout
4. Your insurer pays some or all of the policy's sum assured immediately
5. The policy then ends (you don't receive a further payout on death)

Is terminal illness benefit the same as critical illness cover?

No — they are different:

• Terminal illness benefit is included in most life insurance policies and pays out when you have 12 months or less to live
• Critical illness cover is a separate product that pays on diagnosis of specified serious conditions — regardless of life expectancy. Many people survive conditions covered by CIC. It pays out much earlier in the illness journey.

CIC provides financial support during treatment and recovery. Terminal illness benefit provides support at the end of life.

Is terminal illness benefit included on all life insurance policies?

Most — but not all — UK term life insurance policies include terminal illness benefit as standard. Always check your policy documents. It is typically not available on over-50s plans or whole of life policies with guaranteed acceptance.

Does the terminal illness payout affect benefits or tax?

The payout is generally tax-free. However, receiving a lump sum may affect means-tested benefits. If your policy is written in trust, the payment may be treated differently — speak to a financial adviser if this is a concern.