A terminal illness can lead to severe financial and emotional consequences for you and your family. Typically, a terminal illness benefit is automatically included in your life insurance policy. It provides an early payout of your life insurance benefit to you or your beneficiaries if you are diagnosed with a terminal illness and have a life expectancy of 12 to 24 months.
What qualifies as a terminal illness?
A terminal illness is typically defined as a medical condition diagnosed by a specialist that is expected to lead to your death within the next 12 to 24 months (depending on your product disclosure statement), regardless of any additional treatment.
For a terminal illness insurance claim to be valid, the specialist’s opinion must be based on clinical findings and reports. Often, a second opinion from an independent medical specialist is also necessary. You must also comply with all other policy terms and conditions.
What is a terminal illness benefit?
A terminal illness benefit is a feature in life insurance policies that provides financial assistance to policyholders diagnosed with a terminal illness. If someone receives such a diagnosis and is not expected to survive beyond a certain timeframe, this benefit enables them to access part or all of their life insurance payout prior to their death.
How does this benefit function?
To obtain the benefit, confirmation of the diagnosis by two medical specialists is required, and a claim must be submitted to your insurer. Your insurer must also concur with the diagnosis and might ask you to undergo an Independent Medical Examination (IME). After receiving your benefit, your policy will terminate.
Important: If you have a life insurance policy combined with trauma or TPD insurance, the payout will decrease the coverage amounts on the linked policies.
Do you have to use this benefit if you’re terminally ill?
You don’t have to use this benefit if you don’t want to. It’s totally up to you!
Terminal Illness Benefit in Superannuation
According to APRA, the certification period for releasing terminal illness superannuation benefits is 24 months from the certification date. Certification requirements include:
- Two registered medical practitioners must have jointly or separately certified that you have an injury or illness likely to result in death within 24 months.
- At least one of the medical practitioners must be a specialist in the area related to your illness or injury.
- The certification periods from both medical practitioners must remain valid.
Generally, your terminal illness benefit can be accessed as a tax-free lump sum payment during the certification period.
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Author Profile: Jeffrey Liu, JP, is the founder and principal adviser of Hippo Insurance (aka: Hippo Wealth), with a deep expertise in wealth protection. His extensive experience includes roles in the wealth management divisions of Westpac, ANZ, and a local multi-family office. As the host of “Riches Talk,” a podcast dedicated to cultivating personal and business growth, Jeffrey has established himself as a thought leader in developing life riches. His insights have been featured on SBS, The Australian, and Channel 7. Notably, he was a semi-finalist on Australia’s Got Talent in 2010. Learn more at http://www.hippoinsurance.com.au
