Does Life Insurance Payout for Multiple Sclerosis?

Life insurance provides financial security to beneficiaries upon the policyholder’s passing, covering expenses from daily living costs to education. For individuals managing Multiple Sclerosis (MS), understanding how a diagnosis interacts with life insurance payouts is important. This article explores life insurance policies concerning an MS diagnosis, including existing coverage, new policies, and claiming benefits.

Existing Life Insurance Policies and MS

When a life insurance policy is in force, a subsequent Multiple Sclerosis (MS) diagnosis does not invalidate the death benefit. Life insurance contracts include a “contestability period,” typically one to two years from the policy’s issue date. During this period, the insurer can investigate claims and deny a payout for material misrepresentations or fraud in the original application.

Once the contestability period passes, the death benefit pays out regardless of the cause of death, including MS complications, provided premiums are current. The policy’s validity is not affected by an MS diagnosis occurring after establishment and past its contestability period, assuming accurate initial information.

All initial application information must be truthful and complete. Undisclosed pre-existing conditions or inaccuracies could lead to a claim denial if the misrepresentation was material. Policyholders must ensure premiums are consistently paid to keep coverage active, as a lapsed policy will not pay out.

Accelerated Benefits for Living with MS

Some life insurance policies offer accelerated death benefit riders, allowing policyholders to access a portion of their death benefit while still living. These riders provide financial relief for individuals facing severe illnesses, including Multiple Sclerosis. Common types include critical, chronic, and terminal illness riders, each with distinct qualification criteria.

A chronic illness rider may allow access to benefits if the individual is unable to perform a certain number of Activities of Daily Living (ADLs) or requires substantial supervision due to cognitive impairment. An MS diagnosis might qualify if it leads to functional limitations requiring long-term care. Funds can help cover medical expenses, home modifications, or other costs managing the illness.
ADLs include:
Bathing
Dressing
Eating
Continence
Toileting
Transferring

Terminal illness riders permit access to a portion of the death benefit if a physician certifies a life expectancy of 24 months or less. While MS is progressive, qualification depends on the disease’s advanced stage. Funds are paid as a lump sum or in installments, reducing the final death benefit paid to beneficiaries.

The tax implications of accelerated benefits are generally favorable, as amounts received by a terminally or chronically ill individual are often excludable from gross income under federal tax law. For chronic illness benefits, an annual per diem limit on the excluded amount for 2025 is $440 per day, unless actual long-term care expenses exceed this. Any payments exceeding this limit or actual expenses might be taxable.

Obtaining Life Insurance with an MS Diagnosis

Securing new life insurance coverage after an MS diagnosis involves a thorough underwriting process, assessing the applicant’s health and risk profile. Insurers require a medical examination, medical records, and detailed health questionnaires to evaluate MS severity and progression. Factors like MS type (e.g., relapsing-remitting, primary progressive), relapse frequency and severity, current symptoms, and treatment effectiveness influence insurability and premium rates.

Applicants with mild MS, infrequent relapses, and well-managed symptoms may still qualify for traditional life insurance. They might receive a “substandard” rating, meaning higher premiums due to increased risk. More severe cases, rapid progression, or significant disability could lead to a denial. Insurers also consider the duration since diagnosis and the applicant’s overall health.

For individuals unable to obtain traditional coverage, simplified issue or guaranteed issue life insurance policies may be available. Simplified issue policies require health questions but forgo a medical exam. Guaranteed issue policies ask no health questions and do not require a medical exam. These policies offer lower coverage amounts, often $5,000 to $25,000, and come with higher premiums compared to traditionally underwritten policies.

Guaranteed issue policies include a waiting period, typically two to three years, during which the death benefit will not be paid for non-accidental deaths. If the policyholder dies within this period from a non-accidental cause, beneficiaries usually receive a refund of premiums paid, often with a small interest rate (e.g., 5-10%). This waiting period helps mitigate the insurer’s risk given the lack of medical underwriting.

Claiming Life Insurance Payouts

Initiating a claim for life insurance benefits, whether a death benefit or an accelerated benefit, follows a structured process. The first step involves contacting the insurance company directly, through their claims department, to report the event via phone, online portal, or mail.

For a death benefit claim, the primary document required is a certified copy of the policyholder’s death certificate, confirming the date and cause of death. The beneficiary will also need the policy number and identification. For accelerated benefit claims due to MS, the insurer requires a physician’s statement detailing MS progression, functional limitations, or prognosis, along with medical records.

After initial contact, the insurer provides specific claim forms for accurate completion and submission with all requested documentation. The processing timeline for claims varies, often from a few days to several weeks, depending on complexity and completeness of submitted paperwork. Insurers may follow up with additional questions or request further documentation before approving the payout.

https://www.investopedia.com/terms/c/contestability-period.asp
https://www.irs.gov/publications/pub525#en_US_2023_publink1000229415