Terminal illness cover is perhaps most commonly associated with life protection plans. It is a feature that enables the client to receive advanced payment of their life cover if due to injury or illness they are given less than 12 months to live. What is less known is that many income protection plans also provide a similar terminal illness benefit and in this article we look at how this if offered and what it might mean for clients if given the most dreadful of news.
One can only imagine the mix of emotions that a person would go through when told that they are suffering from an uncurable condition. The impact on them and the circle of people they decide to share the news with will be vast. Some may want to continue with as normal a life as they can and some may want to go out and do the things that they have never got around to doing. Financial restraints on this is the last thing they may want to consider and policies that include terminal illness may be able to provide them with more freedom.
Currently AIG, British Friendly (All plans), Cirencester Friendly (All Plans), Holloway Friendly (All Plans) and Royal London all offer some form of terminal illness provision for the life assured within their income protection plan (LV= do cover the child of the life assured under their parent and child cover). Definitions of terminal illness vary slightly across insurers however ultimately they require the client to be diagnosed with a condition where a prognosis of less than 12 months to live has been given.
Although most insurers covering terminal illness only require the prognosis of less than twelve months to live, some also require the client to meet the definition of incapacity. This may add complications to a claim as the client may still be physically able to carry out the duties of their own occupation particularly if they were unaware of the condition before the prognosis. On the other hand having been given such a prognosis, it might not be as difficult for a doctor to sign the client off work. This aside it is one more hurdle for the client to overcome in qualifying.
If diagnosed with a terminal illness there are some different approaches in terms of what the client may receive.
Deferred period waiver
All insurers listed will waive the deferred period within the policy on receipt of such a claim and commence the benefit payment immediately. British Friendly also state that if the policy is already in payment they will pay the benefits the client might have received within the deferred period on diagnosis of a terminal illness.
Lump sum payment
To provide the client with immediate access to money, a number of insurers will provide the client with a lump sum payment equivalent to a multiple of the monthly benefit.
Whilst both Cirencester Friendly and Holloway Friendly will provide this lump sum in addition to the monthly benefit payable under the plan, AIG will pay the 12 months benefit in place of the benefit. As such the client will receive no monthly benefit for the following twelve months, however if they survive for longer than 12 months they will commence payment of the benefit after the twelve months elapses.
Whilst income protection plans, predominantly look to protect the income of the life assured in the event of illness or injury, such plans have now started to offer far wider coverage. Terminal illness is just one example of how such plans cover a multitude of scenarios and those that provide such features can offer some small financial comfort to a client at an awful time in their life.
Cirencester Friendly and Holloway Friendly really stand out for terminal illness within income protection plans as not only will they waive the deferred period and start benefits immediately, but they will also provide a lump sum equal to six months benefits without the requirement for the client to meet their definition of incapacity.