A terminal illness benefit is an important feature offered by many life insurance policies, including term life insurance. This benefit provides policyholders with early access to their life insurance payout if they are diagnosed with a terminal illness, where the life expectancy is typically less than 12 months. In essence, the terminal illness benefit allows the policyholder to access a portion or the entire sum assured before their death, helping them cover medical bills, treatments, or other financial needs during their final months.
In this blog, we will explore what the terminal illness benefit is, how it works, its advantages, and which policies provide this benefit.
What is Terminal Illness Benefit?
The terminal illness benefit is a critical rider or feature offered by many insurance companies as part of a life insurance policy. If a policyholder is diagnosed with a terminal illness, typically with a life expectancy of less than 12 months, they can access the death benefit early. This means the policyholder can claim part or all of the sum assured before passing away.
Unlike other life insurance benefits, the terminal illness benefit allows policyholders to use the sum assured to meet the financial burden of their medical treatment, hospice care, or other end-of-life expenses.
How Does Terminal Illness Benefit Work?
Diagnosis of Terminal Illness:
A terminal illness diagnosis is typically one where there is a life expectancy of 12 months or less.
Diseases such as cancer, advanced heart disease, kidney failure, and neurodegenerative diseases (like ALS) often qualify as terminal illnesses.
Claim Process:
Once diagnosed, the policyholder or their family must notify the insurer.
The insurance company will require medical reports, doctor’s certification, or other relevant documents confirming the diagnosis of the terminal illness.
If the claim is approved, the insurer disburses the sum assured (either in full or a partial amount), usually in a lump sum payment or as per the policy's terms.
Payment of Benefit:
The benefit can either be a full payout or a partial payout, depending on the insurance provider and the policy's terms.
Some insurers may deduct a portion of the amount from the death benefit if the early payout is made.
However, once the policyholder passes away, the remaining sum (if any) is paid out to the beneficiaries.
Time Frame:
The benefit is applicable once the diagnosis is made, and a life expectancy of 12 months is confirmed. The payment is made as soon as all the necessary documents and medical proof are provided.
Key Features of Terminal Illness Benefit
Early Access to Benefits:
The most significant advantage of this benefit is the early access to the sum assured. This enables the policyholder to use the funds for urgent medical care, treatment, or fulfilling any last wishes.
Eligibility Criteria:
The policyholder must have an active life insurance policy that includes the terminal illness benefit.
The diagnosis of a terminal illness should come from a qualified medical professional, and the life expectancy must generally be 12 months or less.
No Additional Premium:
Most life insurance policies that offer terminal illness benefits do not charge an extra premium for this feature. It’s usually included as part of the standard coverage.
However, some insurance providers may have specific riders or policies that provide enhanced terminal illness coverage for a separate premium.
Tax-Free Payout:
The terminal illness payout, like a death benefit, is typically tax-free under Section 10(10D) of the Income Tax Act, 1961, in India, as long as the premiums meet the conditions laid out by the tax department.
No Impact on Death Benefit:
The remaining amount of the sum assured, if any, will be paid out to the nominee after the policyholder's death, even if the terminal illness benefit has been claimed earlier.
In some cases, partial payout may be made during the policyholder’s life, and the remainder will be paid out to the nominee upon death.
Advantages of Terminal Illness Benefit
Financial Support During Critical Times:
A terminal illness diagnosis often brings enormous emotional and financial stress. The terminal illness benefit gives the policyholder access to immediate funds to cover medical expenses, caregiving, or home care.
It can help reduce financial burdens during the last phase of life, allowing the individual to focus on quality of life instead of financial concerns.
Reduces Financial Worries for Family:
The early payout can alleviate the financial worries of the family, who may otherwise struggle to manage medical bills and other expenses while the policyholder is ill.
The claim payment can be used to clear outstanding loans, pay for treatments, or fulfill any financial obligations.
Convenience and Speed:
Insurance providers usually process terminal illness claims quickly. This ensures that the policyholder or family members receive the payout when it's most needed, without the typical delays associated with standard claims.
Peace of Mind:
Knowing that you have access to funds in case of a terminal illness provides peace of mind, especially for individuals with high medical costs or those who wish to spend their remaining time focusing on family and personal matters.
How to File a Terminal Illness Claim
Inform the Insurer:
Notify your life insurance company as soon as the terminal illness diagnosis is confirmed.
You may need to provide medical reports, doctor’s certification, and other documents to support the diagnosis.
Submit Required Documents:
A copy of the doctor’s report confirming the terminal illness diagnosis.
Any medical records and test results that substantiate the diagnosis.
Claim form from the insurer.
Proof of identity and relationship with the policyholder (if filing on behalf of the policyholder).
Claim Processing:
Once all documents are submitted, the insurance company will verify the details and process the claim.
Once approved, the insurer will disburse the sum assured either in full or partially, as per the policy terms.
Which Insurance Policies Offer Terminal Illness Benefit?
Many life insurance providers offer terminal illness benefits as part of their standard term life policies or as an optional rider. Some of the well-known insurers that typically offer this benefit include:
LIC (Life Insurance Corporation of India): Offers a terminal illness benefit as part of most of their term policies.
HDFC Life Insurance: Includes terminal illness benefits in some of their plans, like HDFC Click2Protect.
ICICI Prudential Life: Offers terminal illness benefits in various policies.
Max Life Insurance: Includes terminal illness cover in several term life insurance policies.
Conclusion: Why Terminal Illness Benefit is Crucial
The terminal illness benefit is a valuable addition to a life insurance policy, ensuring that you or your loved ones can access necessary financial support in case of a terminal illness diagnosis. With this feature, the financial strain caused by high medical costs or end-of-life care can be reduced, allowing the policyholder to focus on their health and loved ones during their final months.
When choosing a life insurance policy, it's important to check whether the terminal illness benefit is included and understand the terms under which it can be claimed. This benefit can be a lifesaver, offering early access to the death benefit and providing much-needed financial relief during a difficult time. Always consult with an insurance counselor to ensure you are fully aware of the coverage options, exclusions, and the claim process related to terminal illness in your policy.
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