People with terminal illnesses are finding themselves unable to access early payouts from their life insurance policies due to obscure clauses buried in contracts taken out during the 1990s and 2000s.
These terminal illness benefits typically enable policyholders to receive funds before death rather than leaving the money solely for bereaved relatives.
These payouts are often used to help pay for care at the end of life, replace lost income while someone is ill, and give families more time together.
However, many older policies included rules that stop people claiming early if the policy is due to end within the next 12 to 18 months.
Although insurers largely stopped using these clauses from 2013 after regulatory and political pressure, older contracts were not changed.
Experts warn that this means hundreds of thousands of people may still hold life insurance policies containing these restrictions.
One Telegraph reader’s case shows how harsh the impact of these clauses can be. After her husband was diagnosed with terminal lung cancer last year, the couple tried to claim on their Aviva life insurance policy, which they had been paying into since 2001.
However, their request for an early payout of £80,000 was refused because their 25-year policy was due to end within the next 18 months.
Insurers argue that these clauses are designed to prevent payouts in cases where a policyholder lives beyond the end of their cover, meaning no standard death claim would be made. They also say policies with these restrictions were sold with lower premiums than those offering full terminal illness cover.
Policies with these restrictions were sold with lower premiums than those offering full terminal illness cover.
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PEXELSDale North, from insurance broker Pure Protect, described the impact of being refused an early payout through small print as deeply distressing. “It’s horrific,” he said. “What’s more, if the policy expires this year and the policyholder doesn’t die until next year, then the family doesn’t get anything.”
He warned this creates an agonising situation where some facing terminal diagnoses find themselves thinking: “I hope I die within this period so my family gets the money.”
Mr North called this “incredibly damaging” mentally and urged people to seek professional advice to review their insurance arrangements.
Holly Tomlinson, from wealth management firm Quilter, observed: “Older life insurance policies can contain exclusions that simply wouldn’t be acceptable today, particularly around terminal illness cover close to the end of the term.”
The Financial Conduct Authority launched a review of the matter in 2023 after becoming “made aware of cases where customers experienced unfair outcomes”
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GETTYShe stressed the importance of regular policy reviews, noting that many people wrongly assume all life insurance operates identically.
The Financial Conduct Authority launched a review of the matter in 2023 after becoming “made aware of cases where customers experienced unfair outcomes”.
In a statement issued last month, the regulator said: “Insurers should review the suitability of policy terms which prohibit terminal illness claims in the last 12 months of the policy (or similar period).”
Hundreds of thousands risk being denied life insurance payouts
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GETTYThe FCA added that such terms could create “potential foreseeable harm” where customers with qualifying conditions cannot access their benefits.
However, the regulator has stopped short of forcing insurers to rewrite existing policies to eliminate these clauses.
An Aviva spokesman explained that most term life insurance sold across the industry before 2013 included moratorium periods, with later policies priced differently to reflect extended coverage periods.