Money When Someone Is Terminally Ill

When someone is told their illness cannot be cured, money is rarely the first thought, but several parts of the benefits, pension and insurance system have rules designed for exactly this situation. The main one is the "special rules" for terminal illness: claims made under them are fast-tracked, decided without a face-to-face assessment, and paid at the highest rate the benefit offers¹. A doctor, nurse or other healthcare professional supports the claim by completing a short medical form¹.

Outside Scotland, the test is whether a healthcare professional thinks the person might have less than 12 months to live¹. In Scotland there is no set timeframe at all: the illness must be expected to cause death, but nobody has to say how long the person might live². The rules also reach into pensions, where a serious ill health lump sum can pay out a whole pension fund tax-free, and into life insurance, where many policies pay out early on a terminal diagnosis.

What counts as a terminal illness for benefits

A terminal illness, in the words of one support organisation, is any illness that cannot be cured and is likely to lead to someone's death⁷. The conditions that can be considered terminal include cancer, organ failure, dementia, stroke, motor neurone disease and multiple sclerosis, though these illnesses are not always terminal⁸. What matters for a claim is the medical judgement about the illness and its course, not the name of the condition.

The benefit rules put this in more precise language. The Employment and Support Allowance Regulations 2013 define a terminally ill claimant as someone "suffering from a progressive disease and death in consequence of that disease can reasonably be expected within 12 months"⁹. The Universal Credit Regulations 2013 use the same wording for Universal Credit¹⁰, and the Employment and Support Allowance Regulations (Northern Ireland) 2008 apply it in Northern Ireland¹¹. The 12-month expectation also appears elsewhere in the system: for example, savings bonus rules treat an account holder as terminally ill when HMRC has received written evidence from a registered medical practitioner that they are expected to live for less than 12 months¹².

Two practical points follow from the definition. First, it is a clinical judgement, so the person claiming does not have to prove anything themselves: the healthcare professional's report is the evidence. Second, the definition is deliberately broad about the illness and strict only about the medical opinion on its outcome. That is why the list of conditions is illustrative rather than exhaustive, and why a condition that is terminal for one person may not be for another⁸.

Special rules: faster claims paid at the highest rate

The special rules exist so that people who are nearing the end of life do not go through the ordinary claims process. A claim made under them is fast-tracked, which means no face-to-face assessment and a decision made sooner¹³. The award is also made at the top of the scale: someone claiming under the special rules automatically qualifies for the higher rate of the benefit¹³, and for Personal Independence Payment or Attendance Allowance the claim is dealt with quickly and paid at the highest rate¹⁴.

The special rules apply to Personal Independence Payment, Employment and Support Allowance, Universal Credit and Attendance Allowance¹. In Scotland, where Social Security Scotland administers disability benefits, a person with a terminal illness is automatically entitled to the highest rate of the daily living and mobility parts of Adult Disability Payment, regardless of how long they have had the illness, and the award is a lifetime award reviewed only on a change of circumstances, paid weekly in advance¹⁵. For Pension Age Disability Payment, the special rules mean the highest rate is paid straight away, only Part 1 of the application form is normally completed, and the usual 26-week care needs requirement does not apply¹⁶. The Scottish legislation states the position directly: an individual who has a terminal illness "is to be treated as satisfying the conditions for the higher rate"¹⁷.

One point that worries many families: a successful application under the Special Rules for Terminal Illness will not affect any other benefits the person may already be receiving³. The special rules change how the claim is handled and what rate it is paid at, not how other awards are treated. The person must still meet the eligibility criteria for the benefit in question, so the special rules are a faster and higher route through the same benefit, not a separate payment¹³.

Benefits that can be claimed under the special rules

The benefits reached by the special rules differ by country because responsibility for disability benefits in Scotland has moved to Social Security Scotland. The position side by side:

In Scotland, Carer Support Payment can be paid under the Special Rules for Terminal Illness if either the carer or the person they care for already gets a disability benefit under those rules, or gets Disability Living Allowance, Personal Independence Payment or Attendance Allowance under the end of life rules from the DWP or, in Northern Ireland, the Department for Communities³. This matters for families because a terminal diagnosis can change what an unpaid carer is entitled to as well as what the ill person receives; the unpaid carers page covers that side of the claim.

For children, Child Disability Payment has its own version of the special rules. There is no qualifying period for a terminally ill child, the application is a shorter one-part form, and awards can be backdated to the date of diagnosis of the terminal illness, up to a maximum of 26 weeks before the date of application¹⁸. Children who qualify automatically get the highest rate of the care component, and the higher rate of the mobility component if they are aged three or above¹⁹. Anyone can apply for the child as long as they tell the person with parental rights and responsibilities, the guardian or the appointee and get their consent²⁰.

A further rule protects people in hospices. If someone has a terminal illness and is in a hospice, they can continue to be paid Personal Independence Payment, Attendance Allowance, Adult Disability Payment or Child Disability Payment²¹. Hospital stays can affect some benefits, but the hospice rule means a terminally ill person does not lose these payments at the point they move into hospice care²¹.

Scotland: no time limit on life expectancy

Scotland's rules are deliberately different from the rest of the UK. If you live in Scotland, there is no set timeframe for how long you are expected to live to be classed as terminally ill¹⁴, and Scotland does not use a fixed time limit²². The definition comes from the Social Security (Scotland) Act 2018: a person is considered to be terminally ill if they have a progressive disease from which death may reasonably be expected²³. The illness must be expected to cause the person's death, but a healthcare professional does not need to say how long they think the person might live for²⁴.

Social Security Scotland does not require a client's healthcare professional to determine life expectancy when supporting an application²⁵. This removes what can be the hardest part of the process elsewhere: asking a doctor to put a figure on someone's remaining time. Under the Scottish definition, the illness must be expected to cause the person's death, but a healthcare professional does not need to say how long they think they might live for²⁴, so a claim does not depend on a 12-month prediction.

The difference runs through the whole claim. Awards made under the Special Rules for Terminal Illness by Social Security Scotland are lifetime awards and will not be reviewed unless the person's circumstances change²⁵. Outside Scotland, benefits awarded under the special rules usually last for a period of 3 years⁴. Scottish legislation also allows entitlement to be backdated by up to 26 weeks where the clinical judgement is dated not more than 26 weeks earlier than the applicable date²⁶.

The difference also matters for how long an award lasts. In Scotland, there is no time limit on getting Adult Disability Payment, Child Disability Payment or Pension Age Disability Payment under the special rules²³, and the definition, with no expectation of how long someone might live, applies to Adult Disability Payment and Pension Age Disability Payment²⁴.

How to claim: the application and the medical form

A special rules claim has two parts, and both are needed. You apply for the benefit itself, and you ask a healthcare professional to complete a form to support the application under the special rules¹. The healthcare professional is usually a GP, doctor or specialist nurse⁴. You must still meet the eligibility criteria for the benefit you are applying for, as well as having a terminal illness⁸.

In Scotland, the process is deliberately short. There is a dedicated fast-track route for people who are terminally ill²⁷. Applications can be made online, by calling 0800 182 2222 free, where specially trained client advisors can help and a paper form can be requested²⁸, or through a shortened application form for Adult Disability Payment, Child Disability Payment or Pension Age Disability Payment²⁹. For Adult Disability Payment, a terminally ill person's application has only one stage, compared with the usual process, and Social Security Scotland aims to make a decision in around seven working days¹⁵. The same seven-working-day aim applies to Pension Age Disability Payment decisions³⁰, and Social Security Scotland aims to process Adult Disability Payment cases identified under the special rules within 7 working days of receiving a completed application form and a BASRiS form³¹.

Social Security Scotland must receive both the application and the BASRiS form before it can make a decision about an award²⁹. Even so, the guidance is not to delay: send in the claim form as soon as possible even if the BASRiS report is still being prepared¹³. If no BASRiS form was submitted initially, Social Security Scotland can confirm with the practitioner over the phone that the individual is terminally ill, and a BASRiS form must then be returned within 28 days¹⁸.

Outside Scotland, the process is similar in shape: the claim is made for the benefit in the usual way, but the doctor completes an SR1 form to say the person has a terminal illness, and the claim is then fast-tracked³³. The claim does not have to be made by the ill person themselves in every situation, and families often help, but the medical report must come from a healthcare professional involved in the person's care or diagnosis²⁹.

DS1500, SR1 and BASRiS forms explained

The medical form is the heart of a special rules claim, and which one is used depends on where the person lives and which benefit is being claimed. Outside Scotland, the form is the SR1 medical report form, used when claiming Employment and Support Allowance, Personal Independence Payment, Disability Living Allowance, Attendance Allowance or Universal Credit⁴. The SR1 replaced the older DS1500 form, so a doctor asked to "fill in a DS1500" will now complete an SR1³³.

In Scotland, the form is the Benefits Assessment under the Special Rules in Scotland, known as the BASRiS form. A doctor or nurse fills it out to say that the person has a terminal illness²⁵, and it can be used when applying for Adult Disability Payment, Child Disability Payment or Pension Age Disability Payment²⁵. There is no charge for the BASRiS form being completed¹⁹. For Pension Age Disability Payment, no other supporting information is required to fast-track an application: the BASRiS form from a doctor or nurse is enough³⁴. Clinicians supporting a Pension Age Disability Payment application have a dedicated helpline, 01382 931060¹⁶.

The forms are interchangeable in one direction: if a DWP DS1500 form or SR1 form has been completed instead of a BASRiS form, Social Security Scotland will also accept it¹⁸. A phone call or letter confirming the terminal illness can also serve as evidence in some circumstances¹³. This matters for people diagnosed in one part of the UK who claim in another, and for anyone whose doctor started the DWP paperwork before the family realised the Scottish benefits applied.

If a special rules claim is refused

A special rules application can fail at the medical stage. If a registered healthcare professional tells Social Security Scotland that the person does not meet the definition of having a terminal illness, the application under the Special Rules for Terminal Illness cannot proceed³⁵. This does not end the claim entirely: Social Security Scotland will ask whether the person wishes to proceed with a standard application for Adult Disability Payment, Child Disability Payment or Pension Age Disability Payment³⁵. A standard application is assessed on care and mobility needs rather than the terminal illness definition, so it can still result in an award, though not through the fast track.

Where the special rules claim itself is decided against the person, or the amount or the date payment starts from looks wrong, the decision can be challenged. You can ask Social Security Scotland to reconsider its decision if you have been told you will not receive disability benefits under the Special Rules for Terminal Illness, if you think the amount is incorrect, or if you think the date you have been paid from is incorrect³⁵. Social Security Scotland prioritises applications under the Special Rules for Terminal Illness, meaning they are dealt with before other applications³⁵, so a reconsideration request on a special rules claim is also handled as a priority.

A refusal often turns on the medical evidence rather than the person's actual condition, since the whole claim rests on the healthcare professional's report. If the first professional approached will not support the claim, the guidance from support organisations is that the application can be supported by a different healthcare professional involved in the person's care or diagnosis²⁹. Someone diagnosed with a terminal illness while already getting disability benefits should contact Social Security Scotland as soon as possible to let them know about the change in circumstances³⁵.

Taking a whole pension early: the serious ill health lump sum

Pensions have their own version of the end-of-life rules. If someone is terminally ill with a life expectancy of less than a year, it is possible to convert all their ill-health benefits into a one-off, tax-free lump sum payment³⁶. The rules on how much can be taken are stark: where life expectancy is less than a year, up to 100 per cent of the pension fund can be taken as a tax-free lump sum⁵. This is known as a serious ill health lump sum, and it exists so that money saved for retirement can be used, and passed on, when retirement will not happen.

The claim needs medical evidence in the same way a benefit claim does. The one-off payment requires a GP or consultant to confirm that life expectancy is less than twelve months³⁶. It is also an option for someone over the scheme's normal retirement age who is applying on age grounds or with preserved benefits, again with the medical confirmation³⁶. Speed is built in: the application is fast-tracked and a decision is normally made within 24 hours of receipt³⁶.

Separate from the terminal illness route, some pension schemes allow early payment on ill-health grounds more generally. The Armed Forces pension guidance, for example, states that someone unable to work full time due to permanent physical or mental ill-health can apply to receive their pension early³⁷. That route does not depend on life expectancy and does not pay the whole fund at once, but it can bring pension income forward years ahead of the normal age. The pensions section explains how pension access normally works, including the minimum ages that apply.

Taking a whole pension fund in one go is a significant step, and the money then sits outside the protections and rules that apply to funds held in a pension. The decision also interacts with inheritance: money paid out becomes part of the person's estate, whereas pension death benefits have their own treatment. The pages on making a will and on what happens to benefits when someone dies cover what happens next.

Tax on a serious ill health lump sum depends on age and access

The headline rule is that the serious ill health lump sum is tax-free, but the conditions matter. The tax-free treatment, up to 100 per cent of the fund, applies where life expectancy is less than a year and the medical confirmation is in place⁵. The lump sum route is a conversion of ill-health benefits: the person gives up the pension income those benefits would have produced and receives the value as a single payment instead³⁶.

Age and the scheme's own rules shape what is available. The one-off payment is an option for someone over the scheme's normal retirement age applying on age grounds or with preserved benefits, provided the GP or consultant confirms the twelve-month life expectancy³⁶. Someone below their scheme's rules on access may find the route works differently, because a pension cannot normally be reached before the minimum access age, and the serious ill health lump sum sits within the scheme's ill-health provisions rather than outside them. The scheme administrator is the body that decides whether the payment can be made on its rules.

Because the whole fund is paid at once, the tax position of the person receiving it, and of the estate afterwards, is worth checking before the payment is made. The tax-free status of the lump sum itself is set out in the official guidance⁵, but what the money is worth to the family after the person dies depends on the estate and any inheritance tax, which the pages on tax after a death and paying inheritance tax cover. Free guidance is available from MoneyHelper, the government-backed pension and money guidance service, and from the pension scheme itself.

Terminal illness cover on insurance policies

Life insurance often includes a terminal illness benefit at no extra cost. Many life insurance policies include it, which means the policy could pay out early if a doctor says the person has less than 12 months to live³⁸. Terminal illness insurance pays out on diagnosis of a condition that is expected to be fatal within 12 months³⁹. Single life insurance policies typically pay out on death or, often, on a diagnosis that the person has a terminal illness and will die within 12 months⁴⁰. Some joint life insurance policies include a terminal illness clause, allowing a payout if one policyholder is diagnosed with a terminal illness and given less than 12 months to live⁴⁰.

Not every policy has this cover. Terminal illness benefit is different from critical illness cover, and not all policies include it, so it is worth checking the policy documents or asking the insurer³⁸. Critical illness cover works differently: it pays a one-off tax-free lump sum when the person is diagnosed with one of the specific conditions covered by the policy³⁹, and the Financial Ombudsman describes it as paying "a lump sum to help you while you recover"⁴¹. A terminal diagnosis is not necessarily a named critical illness, and a critical illness claim is not a terminal illness claim, so the two routes are separate.

If an insurer refuses a claim under terminal illness or critical illness cover, the complaint can be taken to the Financial Ombudsman Service, which can look at critical illness cover complaints⁴¹. The protection insurance section explains how these policies work and what the ombudsman can do.

Putting finances in order

Alongside the claims, there are practical steps that the rules either require or make easier at this point. One is telling benefit offices about the diagnosis: someone diagnosed with a terminal illness while getting disability benefits should contact Social Security Scotland as soon as possible to let them know about the change in circumstances³⁵, because it can move an existing award onto the special rules and its higher rate.

A sensitive point is handled by the system. "Harmful information" is information about a terminal illness diagnosis that a healthcare professional has withheld from their patient because knowing it would cause serious mental or physical harm, and Social Security Scotland will not disclose the diagnosis to the person²⁹. This means a claim can be supported, and a family can pursue it, without the person themselves having been told their prognosis.

Beyond benefits, the same period is when many people put their affairs in order. The options include making a will or, in Scotland, a will under the different Scottish rules, arranging a power of attorney so someone trusted can manage money if capacity is lost, and thinking about funeral costs and the help available with them, including the Funeral Support Payment in Scotland. Where care is involved, the pages on paying for care in each nation set out how it is charged and assessed. Free, impartial help is available: MoneyHelper for pensions and general money questions, and the benefit offices and support organisations named throughout this page for claims.