What is Terminal Illness in Term Insurance & How Does It Affect Your Coverage?

At a Glance

• What is Terminal Illness in Term Insurance: An explanation of what terminal illness means in the context of term insurance, including its definition and how it affects coverage.
   
• How Does Terminal Illness Affect Your Coverage: A breakdown of how the terminal illness benefit works, eligibility, claim process, and how it impacts your remaining coverage.
   
• Life Insurance with Terminal Illness: A comparison of life insurance policies with terminal illness coverage and how they differ from term insurance.
   
• What Happens if You Don’t Have Terminal Illness Coverage: What happens if your policy doesn’t cover terminal illness and what options you can explore in that case?
   
• What Is a Terminal Bonus in Insurance: Explanation of the terminal bonus in insurance, how it differs from terminal illness coverage, and its relationship to investment policies.
   
• Why Should You Consider a Terminal Illness Benefit in Term Insurance: The importance of terminal illness coverage and how it can provide financial relief and support during difficult times.
   
• How to Add Terminal Illness Coverage to Your Policy: Step-by-step guidance on how to add terminal illness coverage to your term insurance policy.

What is Terminal Illness in Term Insurance & How Does It Affect Your Coverage?

When you take out a term insurance policy, it's essential to understand how certain conditions can affect your coverage, especially if you're diagnosed with a terminal illness. While term insurance offers a death benefit to your beneficiaries if you pass away during the policy term, some policies include additional benefits that may be activated if you're diagnosed with a terminal illness. 

In this post, we’ll break down what terminal illness means in the context of term insurance, how it affects your coverage, and what options you may have.

What is Terminal Illness in Term Insurance?

To start, let’s define what terminal illness means in term insurance. A terminal illness is typically a condition or disease where a medical professional determines that the person has less than 12 months to live. This could be due to various life-threatening conditions, such as advanced cancer, end-stage organ failure, or other serious health issues.

In the context of term insurance, a terminal illness clause is a provision that allows the policyholder to receive the death benefit before passing away if they are diagnosed with a terminal illness. This is often referred to as the "terminal illness benefit" or "advanced death benefit."

How Does Terminal Illness Affect Your Coverage?

The terminal illness benefit can provide you with some financial relief during a challenging time. If you're diagnosed with a terminal illness and the policy terms allow for this benefit, the insurance company may pay out a portion or the entirety of your death benefit early, while you are still alive.

Here’s how it typically works:

1. Eligibility: You must be diagnosed with a terminal illness by a medical professional. The definition of a terminal illness varies between insurance providers, but it usually refers to conditions where a person is expected to live for 12 months or less.
    
2. Claim Process: To claim this benefit, you’ll need to submit medical reports or certificates that confirm the diagnosis of a terminal illness. Once the insurer reviews and verifies the diagnosis, they will process the claim accordingly.
    
3. Benefit Payout: The insurance company will pay out a portion of your death benefit. This payout can be used to cover medical expenses, make necessary arrangements, or provide financial support for your loved ones while you're still alive. The exact amount you can receive depends on the terms of your policy, but it’s usually a percentage of the total death benefit.
    
4. Effect on Coverage: If you access the terminal illness benefit, your remaining death benefit will likely be reduced. For example, if you’ve accessed 50% of the death benefit due to a terminal illness diagnosis, your beneficiaries will receive the remaining 50% upon your passing.
    
5. Additional Coverage: Some insurers offer additional riders or options that allow you to extend your coverage or adjust terms to better suit your needs when diagnosed with a terminal illness.

Life Insurance with Terminal Illness

Many life insurance policies, including term insurance, offer the terminal illness benefit. If you have life insurance with terminal illness coverage, the process and eligibility would follow similar steps. The key difference is that life insurance can sometimes offer more comprehensive coverage options beyond just the terminal illness benefit.

While term insurance is generally more affordable and has a specific coverage term, life insurance may provide lifelong coverage. That means it can be more beneficial if you are seeking long-term security. In both cases, however, having coverage for terminal illness can be a crucial financial safety net during a tough time.

What Happens if You Don’t Have Terminal Illness Coverage?

If your term insurance policy does not include a terminal illness benefit, you won’t be able to access the death benefit early if you’re diagnosed with a terminal condition. This could leave you and your family in a difficult financial situation during an already stressful time.

In such cases, you may want to consider looking for policies that offer this benefit or exploring additional life insurance plans that offer more comprehensive coverage. Some policies might have an option to add the terminal illness rider or benefit for a small fee, which could be worth considering depending on your health and family situation.

What Is a Terminal Bonus in Insurance?

You might come across the term "terminal bonus" in the context of life insurance or endowment policies. A terminal bonus is an additional payout that insurers may offer at the end of a policy, usually when the policyholder has passed away. It is not a guaranteed payout but can be a part of some policies, depending on the performance of the insurance company’s investments.

This is different from the terminal illness benefit, which is provided when you are diagnosed with a life-threatening condition. While a terminal bonus is typically associated with policies that include investment components, such as with-profits policies, the terminal illness benefit in term insurance is designed to provide support in the event of a terminal diagnosis, regardless of policy performance.

Why Should You Consider a Terminal Illness Benefit in Term Insurance?

Having a terminal illness benefit in your term insurance policy can provide peace of mind, knowing that if you're diagnosed with a life-limiting illness, you have some financial protection to cover medical costs or other immediate needs. Here are some reasons to consider it:

• Financial Relief: Medical expenses, treatments, and hospital bills can be overwhelming when dealing with a terminal illness. Accessing a portion of your death benefit early can help reduce the financial burden on you and your family.
   
• Immediate Financial Support: The payout from a terminal illness benefit can help you get the support you need right away, giving you more time to focus on health or other family matters.
   
• No Need to Wait: The benefit allows you to access your life insurance coverage early, so you don’t have to wait until you pass away to use your benefit.
   
• Helps Family Planning: This early payout can give you the chance to make final arrangements, pay off debts, or ensure your loved ones are financially prepared after you pass away.

How to Add Terminal Illness Coverage to Your Policy?

If you’re considering purchasing term insurance and want to include coverage for terminal illness, or if you already have a policy and want to add this feature, here’s what you can do:

1. Check Your Current Policy: Review the terms of your existing policy to see if it includes terminal illness coverage. If not, check if it’s available as an optional rider.
    
2. Speak to Your Insurer: Reach out to your insurance provider to discuss adding the terminal illness rider or benefit. They can provide more details on how it works, including costs and eligibility.
    
3. Compare Policies: If you’re in the market for a new term insurance policy, compare different options to see which ones offer the best terminal illness coverage. Look at the terms, payouts, and any extra riders you might want to add.
    
4. Consider Your Health: While purchasing insurance, consider your health condition and whether adding terminal illness coverage would provide more value to you. It’s always better to plan ahead and be prepared for any situation.

Common Diseases That Qualify as Terminal Illnesses

Most insurance companies in India consider certain serious health conditions as terminal illnesses. The most common life-threatening illnesses include cancer, heart attack, stroke, kidney failure, and other critical illnesses. Here are the main diseases covered:

Major Terminal Illnesses Covered:

• Cancer (Advanced Stage) - Most common terminal illness covered by insurers
   
• Heart Failure - Severe heart conditions with no cure available
   
• Kidney Failure - Complete kidney shutdown requiring dialysis
   
• Liver Cirrhosis - Final stage liver disease
   
• Motor Neuron Disease - Progressive nerve damage conditions
   
• Stroke with Permanent Disability - Brain damage causing permanent loss of function
   
• Alzheimer's Disease - Advanced dementia conditions

Your doctor must confirm that you have less than 12 months to live for the claim to be valid. The diagnosis should come from two qualified medical practitioners registered with the Medical Council of India. This medical certificate becomes the main document for your claim process.

Cost of Adding Terminal Illness Rider

Adding a terminal illness rider to your term insurance doesn't cost much extra. Most life insurance plans offer this rider at no extra costs, but in case the plan doesn't include it, you can add it by paying extra premiums. The additional cost is typically 5-10% of your base premium.

For example, if your annual premium is ₹10,000, the rider might cost just ₹500-1,000 more. The cost depends on your age, health condition, and the sum assured amount. Younger people pay lower premiums for this rider compared to older applicants.

Your smoking habits and family medical history also affect the pricing. Some insurance companies offer this rider free of cost with their premium term plans. It's worth comparing different insurers to find the best deal for your family's financial protection.

Limitations and Exclusions

Terminal illness riders come with specific terms and conditions that you must understand before making a claim. Here are the key limitations and exclusions:

Waiting Period Requirements

Most policies have a 90-day waiting period from the policy start date. This means you cannot claim the benefit if diagnosed within the first three months. Some insurers may have longer waiting periods of up to 180 days.

Pre-existing Conditions

Pre-existing conditions are usually not covered under this rider. If you already have a terminal illness when buying the policy, the claim will be rejected. You must disclose all health conditions honestly during the application process.

Common Exclusions

• Self-inflicted injuries or attempted suicide
• HIV/AIDS and sexually transmitted diseases
• Substance abuse related conditions
• Participation in criminal activities or dangerous sports
• War or terrorism related injuries

Claim and Coverage Limits

The payout is typically 25-100% of your sum assured, depending on your policy terms. Once you receive this benefit, your policy coverage reduces by the same amount. Most insurers don't allow claims after 65-70 years of age.

Always maintain proper medical records and inform your insurer about any health changes. Read your policy document carefully to understand all terms and conditions before making any claim.

Final Thoughts

Understanding what terminal illness in term insurance means and how it affects your coverage is essential for making informed decisions about your life insurance needs. The terminal illness benefit can provide critical financial support during a difficult time, helping cover medical expenses and offering some peace of mind.

If you’re considering term insurance, it’s worth looking into policies that offer terminal illness coverage, as it can give you a safety net in case of unexpected health challenges. Always review your policy carefully, speak with your insurer about your options, and ensure your coverage fits your needs.

By being proactive and well-informed, you can secure the right insurance coverage that protects both you and your loved ones, no matter what the future holds. To know more, don’t forget to reach out to Oneassure!

Key Takeaways