In a critical illness policy if a benefit is paid does the policy go out of force? Also why is it that when a terminal ilness benefit is added as an accelerated benefit, the extra cost is negligible?
in a standalone type of CI if payment is made on the diagnosis , then the policy is terminated . similarly , in an accelerated CI , if payment is made either on death or on diagnosis , the policy gets terminated .ie. if claim payment is done on death -then the policy gets termination hence no question arises for diagnosois after death and also the policy gets terminated if claim payment is made on diagnosis of illness -thereby having no further payment on death (until and unless the policy conditions have certain options to continue for payment on death also ). this is similar to the policy going out of force . when a terminal benefit is added the insurer is aware that the policy will result in to a claim in the next few (12 mths), so the discounting for max period of 1 yr is done ,hence the value charged would not differ a lot and the extra cost is minimal.
Yes, when there is a claim under a CI policy, it does indeed terminate the policy. The exception to this is a tiered CI policy, under which a partial benefit might be paid, eg if the policyholder has a mild form of cancer, the benefit paid out may be 25% of the full sum insured. In this case, the policy would not terminate until the full sum insured had been paid. So an individual who had received a benefit of 25% of the sum insured would continue to be insured and would be able to claim up to 75% of the sum insured if the cancer became more aggressive later on. An accelerated CI policy pays out on the first of getting a CI and death. So for a 5-year policy, if the policyholder is diagnosed with a CI or dies within 5 years, then the sum insured will be paid. A terminal illness is one that the individual will not recover from. According to the Glossary, it is an illness from which the individual is likely to die from within a year. Suppose terminal illness (TI) is added to an accelerated CI policy. Anyone who was diagnosed with a TI within the first 4 years of the policy would be expected to die within the 5 year policy term anyway, so these would not cost the insurer any extra. The only claims that would increase the cost to the insurer are the individual's who are diagnosed with a TI within the final year of the policy. In fact, many of these would have been covered by the accelerated CI (without TI benefit) anyway, because many of them will die within that final year, and for some, the terminal illness may fall under a CI definition. So there would be a very small number of extra claims if a TI benefit is added, hence the small additional cost.
