What percentage of life insurance policies payout?

Life insurance pay out rates are consistently high, with insurers paying around 98% of claims each year.[1].

Despite strong payout statistics, there’s a common myth that life insurance providers don’t payout.

In this article we'll explore payout rates from some of the UK’s leading providers, while providing all the information you need to know about life insurance payouts.

Reassured are an FCA-regulated life insurance broker who can help you compare quotes from top UK insurers free of charge.

We can help to compare quotes from providers who have high payout rates.

Why not get in touch for your personalised, fee-free and no-obligation quotes? Best of all, life insurance through Reassured starts from just 20p a day.

What is a life insurance payout?

A life insurance payout refers to the sum of money that is paid to a beneficiary upon the death of a policyholder.

In simple terms, it’s the amount of money that will be paid to loved ones if you pass away while your policy is valid.

Occasionally, the payout may be paid directly to you if a terminal illness or critical illness cover claim is made.

Payouts will be made to a UK bank account and, typically, will be in the form of a lump sum.

What can you do with a life insurance payout?

Life insurance payouts aren’t tied to any specific financial commitments, meaning loved ones can spend them how they see fit.

Often, life insurance is taken out to help protect certain expenses to ensure these can be paid for after your passing.

This could be to help cover:

  • Mortgage payments - Average mortgage debt in the UK is currently £129,130[2]
  • Rent payments - Average monthly rent price in the UK is currently £973pcm[3]
  • Daily living costs - On average UK households spend £2,700 a month on food, drink, transport, and household items[3]
  • The cost of your funeral - The average cost of just a basic funeral is £4,141 with the overall cost of dying estimated to cost £9,658[4]
  • Outstanding debts in your name - Average total debt for UK households stands at £65,529[5]
  • An inheritance - 50% of people in the UK have £1,000 or less in savings[6], a cash gift could help to provide financial stability

Ultimately, a payout from a life insurance policy can be used to help ease financial stress for your loved ones.

Why not input your financial commitments into our handy calculator below to work out the life insurance payout required to cover all costs for your loved ones?

Calculate the life insurance payout you require

Use this handy calculator to find out how much life insurance you may need.
Simply enter the costs you would like your policy to cover.

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£137,934 is the estimated mortgage debt per household in the UK.

The purchase of a home is likely to be the largest financial commitment any of us will make in our lifetime. Your life insurance should cover your remaining mortgage balance to allow your loved ones to stay in the family home should anything happen to you.

Source: Moneynerd.co.uk

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The average monthly household budget in the UK is £2,548 (that’s £30,576 per year), which is spent on transport, food & drink, utilities (gas, electricity, water etc), clothing, council tax and leisure activities.

With energy prices hitting a record high and the cost of living rising sharply in the UK, you may wish to factor in utility bills and family living expenses into your cover.

Source: Nimblefins.co.uk

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The average personal debt of UK adults has risen to £34,566 (not including mortgage debt), with credit cards, personal loans and overdrafts being the most common forms of debt.

Factoring in any debts into your life insurance cover means that, if they need to be paid back from your estate after your passing, your loved ones won’t miss out financially.

Source: Money.co.uk

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According to SunLife, the average cost of a funeral in the UK is £3,953 (with the overall cost of dying at £9,200).

Funeral costs have increased by 116% since 2004 and are a significant cost which should be factored into the amount of life insurance you secure.

Source: SunLife.co.uk

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When factoring in cover for your children, you may wish to calculate the amount based on how long it is until they reach financial independence.

This could include childcare (£7,000 per year for part-time care), school expenses (£1,519 per school year for uniforms, lunches, stationary etc), as well as an additional sum for further education (this could be a contribution of up to £5,000 per year).

Sources: Daynurseries.co.uk, Primarytimes.co.uk & Savethestudent.org

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2 in 5 adults say they are relying on an inheritance to fund their retirement.

Factoring in an inheritance to your sum assured could allow loved ones to live a more financially comfortable life. Alternatively, you could leave a cash gift to a charity of your choosing.

Source: Moneyage.co.uk

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If you’re lucky enough to have your own savings or are part of the 30% of UK residents who already have a life insurance policy in place, this can provide financial protection for loved ones.

By entering your current cover, savings or death in service amount you can reduce the sum assured you require.

Source: Scottishbusinessnews.net

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Your total cover estimate

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What are the payout rates for life insurance policies?

Each life insurance policy type will have its own payout rate.

While the overall industry payout rate is 96.9%, this percentage will be made up of each policy types payout rate.

Term life insurance payout rates

Term life insurance

Term life insurance provides cover for a set period of time and can be taken out with a level or decreasing payout.


In 2022, 96.9% of term life insurance claims were paid out - totalling £3,907,342,000[1].

Whole of life insurance payout rates

Whole of life insurance

Whole of life insurance provides lifetime cover. As a result, a payout is guaranteed to loved ones.


In 2022, 99.9% of whole of life claims were paid out - totalling £863,752,000[1].

Income protection payout rates

Income protection

Income protection insurance can payout up to 70% of your usual earnings if you’re unable to work due to illness or injury.


2022, 84.4% of all income protection claims were paid out - totalling £778,564,000[1].

Critical illness cover payout rates

Critical illness cover

Critical illness cover can payout a lump sum if you’re diagnosed with a specific illness (that’s listed within your policy terms).


In 2022, 91.6% of critical illness claims were paid out - totalling £1,274,111,000[1].


Reassured can help you compare a range of policies to help you find your ideal cover solution. Simply get in touch.

Who are the best life insurance companies that payout?

The table below shows some the UK’s best life insurance providers based on their most recent payout rates:

ProviderPay out rate %
1 Vitality logo
Vitality
99.7%
2 Royal London review logo
Royal London
99.4%
3 Aviva
Aviva
99.3%
4 AIG logo
AIG
99.0%
5 Zurich logo
Zurich
98.0%
6 Legal & General
Legal & General
97.0%
7 LV=
LV=
97.0%

This information has been taken from each providers website and is correct as of 16/04/24

As you can see from the table, payout rates vary significantly between the different providers.

This is because each insurer will have their own terms and conditions and their own criteria for assessing claims.

Many believe that the provider with the highest payout rate will be the best life insurance provider.

However, payout rates are just one factor that should be considered when finding the right insurer.

The most important thing is finding the cover that really meets your needs, at a price within your budget.

Why not compare quotes through Reassured? We can help you secure cover from Aviva, AIG, Zurich, LV= and Legal & General.

How do life insurance payouts work? (Making a life insurance claim)

A life insurance payout will be released to the intended beneficiary upon a successful claim.

A payout can only be issued after a claim has been made.

The claims process can vary between providers but, as a general rule, it can be as simple as:

Fee Free

After the passing of a policyholder within the term of their policy a claim can be made. It’s important to make sure that loved ones are aware of the policy so they know who to make a claim with.

Planning the funeral your way

The insurer will send out claims forms which will need to be completed. Once the insurer has received these documents back, the validity of the claim will be assessed.

Family Protection

Once the claim has been assessed and deemed successful, a payout will be made to the beneficiary or beneficiaries of the policy (to a UK bank account). The funds can often be paid out within 30 days.

Health

If making a terminal illness or critical illness cover claim, you’ll follow the same process. Claim with your insurer, complete claims forms and wait for your claim to be assessed.

Don’t know who to claim with?

It’s not uncommon for a loved one to pass away without providing any information about their life insurance policy.

The register of consolidations, provided by the Association of British Insurers (ABI) can provide you with information on whether your loved one held a life insurance policy and who with.


We have a dedicated how to find out if someone has life insurance article for more information »

Do you have to pay taxes on a life insurance payout in the UK?

Yes, life insurance payouts can be subject to inheritance tax as the payout sum will form part of the policyholder’s estate.

Inheritance tax is charged at 40% on anything which takes an estate over the value of £325,000.

As an estate is made up of property, possessions and money, it’s not hard for it to exceed this amount.

Writing a life insurance policy in trust can help to avoid/minimise inheritance tax by detaching it from your estate - allowing loved ones to receive a full and fast payout.

Write your life insurance policy in trust with Reassured

At Reassured we offer a free trust writing service with the majority of our policies.

Writing your policy in trust has the following benefits:

  • Avoid/minimise 40% inheritance tax
  • Bypass a lengthy probate process
  • More control over your payout

Our dedicated team can help you through every step of the process, so why not get in touch for more information?

What is the average life insurance payout UK?

The average life insurance policy varies depending on the policy type.

For example, as of 2022, the average payout rates for term life insurance and whole of life insurance were as follows:

Life insurance policyAverage amount paid out
Term life insurance£73,578[1]
Whole of life insurance£4,054[1]


Term life insurance is often taken out by young adults who want to help protect family living costs and/or a mortgage. Therefore, a larger sum assured is often required.

Whereas whole of life insurance is more commonly taken out by those later in life, who have paid off their mortgage and have grown up children.

By taking out a whole of life policy they can help cover their funeral costs or provide an inheritance.

Compare multiple life insurance policies through Reassured to find the right option to meet your needs.

How long does life insurance take to payout?

Typically, it can take up to 30 days for the funds from a life insurance policy to be paid out.

This will be 30 days from the claim being assessed and deemed as valid.

In order for a claim to be valid:

  1. Policy payments must be up to date
  2. The policy must not have expired
  3. All information provided on the application must be correct

If issues are found with any of the above, while the claim is being assessed, there may be a delay in the funds being paid out.

If payments aren’t up to date, it’s found that false information was provided and/or your cover isn’t in date, insurers can deny a payout.

What could cause a delayed life insurance payout?

Payouts can be delayed if the insurer needs to gather more information about the claim and/or the person who’s passed.

There are certain clauses that can be written into a life insurance policy to allow insurers to investigate the claim if it seems suspicious. These include:

  • The contestability clause - This clause allows insurers to gather more information about the death. This could be through post-mortem notes or medical records to determine if all information given at the point of application was correct. If it’s discovered that false information was provided or key information was withheld, insurers can deny a payout
  • The suicide clause - This clause prevents a payout from being made for death as a result of suicide within the first 2 years of the policy. If there is a suspected suicide, the payout can be delayed until the cause of death is confirmed

Please note: the clauses that are written into policies and their time scales will vary between the different providers.

Additionally, if the policyholder passes away as a result of homicide, the payout will be delayed until any policy investigations have ended and a verdict has been reached.

What are reasons life insurance won’t payout?

In an ideal world, every life insurance provider would have a 100% payout rate. However, there are some instances where a payout can be denied.

This includes:

  • Suicide - During the first 2 years of your policy where the suicide clause is in place, or if it’s written as an exclusion in your policy, insurers won’t payout
  • Non-disclosure - If it’s found that you provided false information or withheld information on your application, insurers won’t payout. For this reason it’s always best to be open and honest with insurers to prevent your selfless investment from being wasted
  • Missed payments - If you haven’t kept up to date with your life insurance premiums, your cover will become invalid and a payout will be denied if your loved ones try to make a claim

Please note: due to the varying underwriting processes used, the reasons for not paying out may differ between each insurer.

For more information, why not read our complete when does life insurance not payout guide? »

Life insurance payout [FAQs]

Does life insurance pay the full amount?

Yes, the full sum assured will be paid to your loved ones upon a successful claim being made.

The exception to this is with decreasing term life insurance, where the sum assured will reduce throughout the policy lifetime.

What is the highest life insurance payout?

It’s possible to take out life insurance with a payout sum of £1,000,000 through Reassured.

However, this level of cover is likely to be unnecessary for most.

The amount of cover you take out should simply be enough to help cover your financial commitments.

When do insurers payout?

Insurers will payout after the policyholder has passed away and upon receipt of a successful claim.

This could be within 30 days but it’s possible for delays to arise if the insurer needs to gather more information.

Will the payout be a lump sum?

Yes, in most cases, life insurance is paid out as a lump sum.

The exception to this is family income benefit, which will payout to loved ones in monthly instalments (like a regular income).

After your passing, loved ones will receive monthly payments for the remainder of the policy term.

If you have a policy with a 30 year term, and pass away 10 years into the policy, your loved ones will receive payments for the remaining 20 years.

This is an ideal option for those with young families who want to help protect their daily living costs.

Is a life insurance payout guaranteed?

A life insurance payout is only guaranteed with whole of life insurance and over 50 life insurance, as these are forms of life assurance.

As term life insurance lasts for a specific period of time, it’s possible for you to outlive the policy. As a result, the payout isn’t guaranteed.

All information given at the point of application must be correct for a payout to be guaranteed.

Who gets the life insurance payout?

Generally speaking, a life insurance payout will be made to one of the following:

  • Your spouse
  • Your children
  • The person / people named in your Will
  • The named beneficiary on your life insurance policy
  • Your next of kin (if no one is specified)

Naming beneficiaries and/or writing your life insurance in trust allows you to have greater control over who the funds are paid to.

What happens to a life insurance payout with no beneficiary?

When no beneficiary is stated on a life insurance policy, the payout usually goes to your next of kin.

The payout will form part of your estate of the deceased and will undergo the same processes as other assets - this includes going through the probate process and being subject to inheritance tax.

The proceeds of estate will then be distributed as stated in your will. If there’s no Will present, again, it will fall to your next of kin.

Can I receive an early life insurance payout?

Yes, while it’s commonplace for the funds from a life insurance policy to be paid out after your passing, there are certain scenarios where you could receive an early payout.

  • Terminal illness cover - Terminal illness cover comes with all term policies and some over 50s plans through Reassured. It will allow you to make an early claim on your policy and receive an early payout. These funds can then be used to cover end of life care, get your financial affairs in order or simply be used to enjoy time with your loved ones
  • Critical illness cover - Critical illness cover can be added to a life insurance policy for an additional fee. It will allow you to receive an early payout if you’re diagnosed with a serious illness that’s listed within your policy. The funds can help to replace lost income if you’re able to work, pay for private medical treatment or pay for any necessary adaptions

Life insurance with critical illness cover starts from just £10 a month through Reassured. Simply get in touch for your free quotes º .

Does the payout stay the same no matter when you die?

Typically, the payout sum will remain the same throughout the policy lifetime. However, there are few circumstances in which the sum may change.

The sum paid out to your loved ones can change if:

  • You take out decreasing term life insurance - Decreasing term life insurance provides a sum assured that reduces throughout the policy lifetime. It’s often used to protect a repayment mortgage and, for this reason, your sum assured will reduce similarly to a mortgage balance
  • Your life insurance policy has a ‘special events’ clause - A special events clause (also known as the guaranteed insurability option) will allow you to change your level of cover to help meet new circumstances. This could be growing your family and/or moving to a bigger home. Not all policies will include this option

Reassured offer life insurance policies that include the special events option, so why not speak to a friendly member of our team about guaranteed insurability?

Find the right life insurance payout for you

While payout rates help to give a good indication of whether an insurer is likely to payout or not, it’s not always the most important thing to consider.

The most important thing is that your policy covers your financial commitments and is at an affordable price.

Reassured can help you compare quotes from some of the UK’s best providers, as well as smaller specialists.

A friendly member of our team can also talk through your needs to help you find a payout amount that’s right for your circumstances.

Our quotes are personalised to your needs, fee-free and completely without obligation.

Best of all life insurance through Reassured starts from just 20p-a-day, so why not get in touch?

Sources:

[1] https://www.abi.org.uk/news/news-articles/2023/5/protection-insurers-pay-out-6.85-billion-to-support-individuals-and-families/

[2] https://www.finder.com/uk/mortgage-statistics

[3] https://www.nimblefins.co.uk/average-uk-household-budget

[4] https://www.sunlife.co.uk/funeral-costs/

[5] https://moneyadvisor.co.uk/average-debt-uk/

[6] https://www.finder.com/uk/saving-statistics

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