Reasons life insurance won’t pay out

In the UK, 96.9% of life insurance claims are successful, however, there are a small handful of occasions when a claim will be declined[1].

These include:

  • Non-disclosure
  • Missed premium payments
  • Unsatisfied waiting period
  • Uncovered cause of death

At Reassured, we can help you not only to compare quotes to secure our best deal but also to help you fill in the application form for peace of mind.

Simply get in touch today to make use of our award-winning broker service.

Source: Association of British Insurers, https://www.abi.org.uk/

Does life insurance always pay out?

No. As discussed, 96.9% of life insurance claims made in the UK are successful.

Whilst this does mean that life insurance doesn’t always pay out, it does mean that the likelihood is much higher than perhaps first thought.

However, this doesn’t take into account term life insurance policies which expire.

If your life protection is arranged on a term basis, it means that your cover will only last for a set period of time.

Therefore, if you outlive the term of your life insurance, a pay out won't be made.

Let’s take a closer look at the reasons a small minority of life insurance claims are declined…

1. Non-disclosure

The most common reason for a life insurance claim being unsuccessful is due to non-disclosure.

This refers to withholding details or providing misinformation at the point of application.

If upon your death it's deemed the information you provided wasn’t 100% truthful, the life insurance provider has the right to decline a pay out; highlighting the need to be open and honest when arranging cover.

It's a common misconception that life insurance companies will try to find holes within your application as a means of declining a pay out – this is not the case.

The most likely reason non-disclosure will become apparent is if your cause of death was as a result of a pre-existing medical illness you were aware of prior to application but didn’t disclose, or substance misuse you didn’t mention.

Most life insurance policies implement a contestability clause of 12-24 months from application, meaning that if you pass away during this period, your death can be investigated further.

This allows the life insurance provider access to your medical reports and autopsy results to determine if any non-disclosure took place.

Again, this highlights the need to ensure you provide as much truthful, relevant information at the point of application - something our award-winning team can help with.

2. Missed premiums payments

Missing a premium payment can result in the expiration of your life insurance.

Therefore, to ensure your life insurance is valid upon your passing, it's important to ensure all premium payments are up to date.

If you're unable to afford your monthly premiums or need to miss/delay a payment for any reason it's essential to inform your insurer immediately.

In exceptional circumstances, there may be support your provider can offer you to ensure that your life insurance remains valid.

If payments are missed, it's likely your life insurance will be cancelled and any future claims will be declined.

Having in place a waiver of premium benefit means that if you're incapacitated and unable to work due to illness or injury, your provider will keep your life insurance valid.

Usually, this requires you to have been away from work for a specified period of time (3, 6 or 9 months depending on the insurer) and premiums to be kept up to date during this period, for the waiver of premium to be activated.

If you were to pass away whilst a waiver of premium benefit is in play, your missed payments won't result in a claim being declined.

Please note, this benefit option has to be taken out at the point of application and incurs an additional cost.

Life Insurance Calculator

Calculate how much life insurance you may need by filling in the costs you’d 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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3. Waiting period

Some life insurance policies, typically over 50s plans, come with a waiting period.

This is a period of time at the being of the policy (usually 12 or 24 months) where you won't be covered if you pass away due to natural causes, (although all premiums paid to date will be refunded).

You'll still be covered for accidental death during this period.

For life insurance policies implementing a waiting period, passing away due to natural causes during this period of time will result in a claim being declined.

To determine the waiting period on your particular cover, please refer to the terms and conditions of your policy or contact your insurer.

It's possible to arrange life insurance with no waiting period clause.

At Reassured, we arrange policies with a number of different providers offering a variety of waiting periods.

4. Exclusions

When arranging life insurance, depending on your personal circumstances, some policies come with exclusions.

These will be detailed on a case by case basis and will require manual underwriting.

For example, if you suffer from Type 1 diabetes, it may be written into your cover that if the cause of death is directly linked to your condition or caused by a related illness, such as heart attack or stroke, your cover will not be valid.

If this is the case, a pay out will be declined on this basis.

Alternatively, some policies may also include exclusions if you were to take up residence within specific areas of the world.

Moving to these areas could result in your life insurance becoming invalid and a pay out being declined.

All exclusions will be explained at the point of application and it may be possible to ask for inflated premiums to ensure all causes of death are included.

Alternatively, if you're likely to have exclusions included within your cover, due to pre-existing conditions, at Reassured we can arrange more comprehensive cover from a specialist insurer who can cater to your individual circumstances.

Contact our team today to discover your policy options.

5. Suicide

It's often questioned whether or not life insurance covers death after suicide. The answer is, yes, there are policies available which cover this cause of death.

However, these policies will only cover death by suicide after the policy has been in place for a set period of time.

This is usually 12-24 months, depending on the insurer.

If the policyholder passes away as a result of suicide during this time, it's likely a pay out will be declined.

Read our article on life insurance after suicide to fully understand how death by suicide can affect a life insurance pay out.

6. Term expiry

As discussed, some life insurance cover only remains in place for a set period of time, a term.

If the policyholder doesn’t pass away during the term of the policy, cover will expire and death after this will not result in a pay out.

7. Terminal illness

Once you're accepted, contracting a terminal illness won't result in your loved ones being declined a pay out upon your passing.

However, most life insurance policies contain terminal illness cover as standard.

This means that if you're diagnosed with a terminal illness and given less than 12 months to live, you can make an early claim on your cover.

Unfortunately, with some policies terminal illness cover expires 12 months before the end of the policy, meaning that if you're diagnosed with a terminal illness during this period of time, you're likely to be declined an early pay out.

Although, your loved ones will still be issued a pay out once you pass, if you pass before the cover expires.

How long do you have to pay life insurance before it pays out?

With the exception of policies which implement a waiting period, your life insurance commences as soon as you're accepted.

Therefore, life insurance usually pays out regardless of when you pass away following your start date and providing you pass away within the policy term, although, it's more likely providers will evoke the contestability clause the sooner your passing.

One exception is if the cause of death is suicide. Here there is an exclusion period of 12-24 months from the start of the policy, (known as the suicide clause).

What if my life insurance claim has been declined?

Whilst it's rare, it may be that you've been declined a life insurance pay out and believe the decision was wrongfully made.

In this instance, initially, you should contact the life insurance provider and follow their official disputes/complaints process.

If this doesn’t result in the outcome you were hoping for, you can contact the Financial Ombudsman Service, who will review your case and come to a final decision.

Compare quotes for our best deal

As mentioned, if your cover is still in place, the likelihood of a claim being successful is high.

However, the cost of life insurance varies significantly, making it important to compare quotes. You can do this fee-free using Reassured.

At Reassured, we can discuss all your needs with you and source quotes for you to compare for free.

Get in touch today to obtain your free no-obligation quotes.

Sources:

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

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