Does life insurance really pay out?

May 17th, 2022
Does life insurance really pay out?

It is estimated that around 63 per cent of British adults, the equivalent of around 32.9m people, don’t have life insurance [1]. Many people are put off by ‘myths’ that insurers don’t pay out, as well as worrying over the cost of life insurance premiums. There is a widespread idea that life insurance isn’t a financial priority but this can be a costly mistake to make, especially when you realise that life insurance policies DO pay out billions of pounds each year and could offer financial security to loved ones at an extremely difficult time.

Do life insurance companies really pay out?

The Association of British Insurers and Group Risk Development figures show that the insurance industry paid out £6.2bn in 2020 alone for life insurance, critical illness, and income protection claims. This demonstrates that the idea that there is no point in investing in life insurance policies is untrue. In fact, the vast majority of life insurance policies will pay out with no issues at all. There are some reasons why life insurance won’t pay out but these will be explained further on and are fairly simple to avoid and, as we will demonstrate in the next section, life insurance can be an invaluable asset to you and your family.

The benefits of life insurance

There are many benefits of life insurance, not least its ability to offer financial security for your loved ones after your death. It can help to reduce disruption for your dependents caused by your loss and to compensate if your earnings will be missed. Life insurance can help to pay off debts, including a mortgage, and could contribute to funeral costs. Most importantly, it can offer peace of mind to you, leaving you feeling sure that your family or loved ones will be properly taken care of.

As well as helping out your loved ones after your death, life insurance can also benefit you directly if you contract a terminal illness after taking out your policy. Most life insurance cover includes terminal illness cover which means that if you are told you have less than a year to live, it is possible for you to make a claim. Just be aware that some insurance policies end terminal illness cover a year before the policy expires. This means that the policy will not pay out if you are diagnosed with a terminal condition during this time.

Why is insurance so expensive?

Despite all of these benefits, it is not hard to see why some people are still under the illusion that life insurance is too expensive for them, especially when you hear reports from the likes of Law360 who are looking at bringing a class action lawsuit to challenge ‘unjustified’ rises in life insurance premiums by providers. This does not give the full story, however, as figures also show that the average cost of life cover is under £11 for £100,000 of cover, which is less than many people pay for their TV packages. There are over 300 authorised life insurance firms in Britain [2] and so there are plenty of opportunities to find a cost-effective product for you, especially when you make use of Free Price Compare’s comparison services.

There is no doubt that it has never been more important to spend wisely as the LifeSearch Health, Wealth & Happiness 2022 Index showed that the UK’s wealth score fell to 86.7 from 93.0 the year before due to cost of living increases [3]. Thankfully, we are on-hand to offer you a quick and convenient way to find the essential life insurance cover that you need at a price you can afford. We can form a major part of your comprehensive research into the best life insurance for you, which should include checking out providers and the likes of Zurich insurance reviews and those relating to life insurance firms other than Zurich, which was founded in 1872 and now operates in over 170 countries around the world, including the UK.

How much will life insurance cost?

Whilst it may not be as expensive as you might imagine, the amount you pay for your life insurance will depend on a range of different factors, these include the type of insurance you go for, the provider, and your own health, age, and family history. Term life policies are less expensive than whole life policies.

Understanding life insurance payouts

Life insurance is designed to pay out when the policyholder dies. If you are making a claim, you should do so as soon as you can after the insured person has died and be prepared to provide documentation in support of your claim.

The claims process will have three main stages: notification, assessment and then the payment. At the notification stage, insurers will generally need the number of the insurance policy, contact details for the insured person’s doctor, and your details. You may need to fill in a claim form and you may have to provide the death certificate. The payment will be made to the policyholder, in the case of terminal illness, or to personal representative, who will usually be the executor of the will. The amount paid out will depend on how much insurance has been taken out and the type of life insurance policy involved.

Reasons life insurance won’t pay out in the UK

We have hopefully debunked the general myth that a life insurance pay out is unlikely but there are some reasons for insurance not paying out. In Britain, around 97 per cent of claims on life insurance policies are successful but there are some reasons why they may fail. let’s take a look at what these may be:

Non-disclosure

This is the most common reason for claims being unsuccessful and refers to people providing misinformation or withholding details when applying for their policy. If non-disclosure is found after your death, then your insurance provider can decline to pay out. This is why it is so important to be completely truthful when applying for your policy.

One of the most common forms of non-disclosure relates to pre-existing medical conditions or substance misuse. Most insurance firms will have a contestability clause that means that if you pass away between a certain amount of time after taking out the policy, usually a year or 2 years, then your death is eligible for further investigation and the provider can access autopsy results and medical reports to establish if there are any issues with non-disclosure.

Uncovered reason for death

Some life insurance policies will come with personal exclusions that are manually underwritten. This could be type 1 diabetes, for example, and means that you will not be covered if you die as a result of this condition or any related illness. There may also be exclusions if you decide to live in certain locations in the world. If you have a range of pre-existing conditions, you may need specialist insurance that can really cater to you.

Many people think that suicide is a reason for refusal of a payout but this is not always the case. In most cases, suicide is covered provided that this does not occur within the immediate period after the policy is taken out. Suicide will usually only be covered after a period of between a year and two years has passed.

Unsatisfied waiting period

Some life policies, particularly over 50s life cover, have a waiting period following the start of the insurance term. This is usually a period of a year or two years immediately after you take out the policy when there won’t be a payout if you due as a result of natural causes. Premiums paid will be refunded, however, and you should still be covered in the case of accidental death.

Missed premium payments

Missing a payment can mean your life insurance policy expires and so it is important to stay up-to-date. If you’re facing financial difficulties, get in touch with your provider who, in certain circumstances, can offer support to ensure your policy remains valid. You can choose to have waiver of premium cover which means your life insurance will stay valid if you are unable to work and earn as a result of an injury or illness. There are conditions attached to these waivers, however, and so it is vital that you check out your cover.

Expired term life insurance

These policies will only cover you for a certain period of time and so there won’t be a payout if you outlive the pre-arranged term.

What to do if your life insurance claim is refused

It is rare for life insurance claims to be declined but it can happen and if it does and you believe that this is a wrongful decision, then there are things you can do.

Firstly, you will need to contact the insurance provider and follow the official complaints or dispute procedure. If this does not create the outcome you require, then you can get in touch with the Financial Ombudsman Service and ask for your case to be reviewed.

If you have problems with your insurance policy, whether that’s because of a payout refusal on life insurance or paying insurance excess bills for another policy, then the likes of Citizens Advice are also on-hand to offer help and information. You can review the organisation’s advice at https://www.citizensadvice.org.uk/consumer/insurance/insurance/problems-with-insurance-policies/.

Time to consider life insurance

If this article has made you think about life insurance and the benefits that it could have for you, then don’t delay in making use of our services to compare the options and premiums that are available to you. Don’t make the mistake of thinking that insurance is not important to you and risk leaving behind loved ones who don’t need to face financial insecurity on top of having to deal with your loss.

Changing perspectives

The insurance industry is keen to change perspectives when it comes to life insurance as many people still prioritise saving money over paying for these products. Research by EY [4] found that more than three-quarters of people placed savings as a priority, compared to just 15 per cent who thought that life insurance should be in the top trio of priorities when it comes to safeguarding their financial wellbeing.

There is also a gap between the genders and in different sectors of the communities in which we live. For example, the research found that only 8 per cent of women had bought or thought about buying life insurance, compared to 14 per cent of men in the UK, and other research suggests that almost a third of people don’t see life insurance or critical illness cover as a financial priority [5].

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