Terminal and Critical Illness

Life insurance policies pay out after the death of the policy holder.  It is meant to cover a number of different expenses.  Some of them have to do with the death itself such as funeral expenses, but others include ways of providing for dependents.

However, many of the financial situations that occur after the death of a family member also occur if that family member becomes seriously ill.  To address those situations, life insurance companies may also offer critical illness insurance and terminal illness insurance.

Terminal Illness Insurance

Terminal illness insurance, also known as an accelerated death benefit, pays out similarly to life insurance, excep it is triggere before death rather than after death.  A qualified physician will need to certify the policy holder has a terminal condition and he is not expected to live more than 12 months.  If the policy holder ends up surviving past that 12 month window, however, he will not have to pay the money back.

A terminal insurance payout may be a portion or the entirety of the value of the life insurance policy.  One cannot, therefore, collect once on terminal insurance and then again after death on life insurance.  It is essentially the same policy with a single, joint value.  The purpose of terminal insurance is to address a variety of medical and everyday costs as they are accruing rather than struggling to pay bills until death.

Critical Illness Insurance

Critical Illness insurance is very different from terminal illness insurance.  Terminal illness insurance is meant as an advance on regular life insurance.  Critical illness covers people who are very sick but who have every possibility of surviving, or at least surviving more than 12 months.

Critical illnesses can be a heavy burden on a household.  Besides the substantial medical bills often incurred, there are lots of everyday costs that need to be addressed.  Some have been compromised because of a lack of employment: bills that you have normally been able to pay but no longer can because illness keeps you from gainful employment.

Others are costs incurred directly by the illness.  These include:

  • Childcare, if you’re no longer able to supervise small children
  • Nursing care for yourself in the event you can no longer perform basic activities
  • Special equipment such as wheelchairs and wheelchair accessible vehicles that might not be covered by medical insurance
  • Deductibles and other out-of-pocket medical insurance expenses
  • Transportation, either as an everyday need or for travel to a non-local facility for treatment

What counts as Critical Illness?

Most policies cover cancer, stroke and heart attack as basic critical illnesses.  However, beyond that, there is a great variety of conditions that may or may not be covered.

Other potentially covered conditions include:

  • Alzheimer’s and other forms of dementia
  • Blindness and deafness
  • Paralysis and loss of limb
  • Multiple Sclerosis
  • Transplants

If there is a situation that particularly concerns you (perhaps based on family medical history, for example), be sure the condition is included in your specific policy.

Critical illness insurance may also pay out more than once, so long as the conditions aren’t related.  For example, one might collect upon losing their sight, then collect again when they’re later diagnosed with Alzheimer’s.  This is because it is understood that each of these events puts additional financial strain on the policyholder.

Terminal and critical illness insurance are very different things and should not be confused.  However, both are meant to provide a payout before a person’s death, unlike life insurance.  This allows for money to help the policyholder and his family while he is still alive, rather than having to accrue debt until such time as a life insurance policy pays out at death.


 

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