Reasons Why Life Insurance Won’t Pay Out

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By Crispin O'Toole-Bateman

on Monday 9 September 2019

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As a whole, people don’t like the idea of insurance. Misconceptions regarding the industry are rife, especially when it comes to paying out on policies. “Your life insurance won’t pay out, it’s a scam”, the sceptics say.

Of course they’re wrong on many levels, but the fact remains that many people worry that a clause will be found in their insurance policy that denies their family the money they are relying on. Let’s not hide the fact that those types of clauses do exist, but it’s very rare that life insurance doesn’t pay out.

Fact #1: More than 97% of life insurance claims are paid out in full.

Different life insurance companies have different stats for their payout levels, and many of the companies we work with and recommend have 99% payout rates – a couple even claim 100%!

When you look at it from a marketing perspective, it comes as no surprise that life insurance is paid out with such confidence – after all, does any provider want to be known as the life insurance company not paying claims?

It wouldn’t be long, especially in a world of social media and easily available statistics, before the impact of failing to pay out legitimate life insurance claims would ruin a life insurance company.

Not only that but (and this may come as a surprise), but life insurance companies are made up of human beings and no one wants to see a grieving family lose their home because of a decision they made!

The bottom line is that life insurance companies actually want to pay out on every claim made. It’s good for business, morale, and their conscience!

Fact #2: The biggest reason that life insurance doesn’t pay out (on the rare occasions it doesn’t) is fraud.

Fraud sounds like a very scary term, and for criminal investment bankers now serving time, it probably is, but it encompasses a lot of activity and lying on your life insurance application is one of them.

It is imperative that your initial application is accurate and you don’t try to hide anything. If there’s a reason for an investigation and you were found to have lied on your application (about smoking, for example) then the life insurance payout will be refused due to fraud.

Non-disclosure of medical conditions is the top candidate here – always tell the truth, even if it means a slightly higher premium. It will be worth it in the long run.

Fact #3: Most life insurance policies will pay out for suicide

Many people want to know if life insurance pays out for suicidal death in the UK, and while the answer is a little complicated, the core of it is that yes, it does.

We have an in-depth article regarding life insurance and suicide that we recommend reading for a comprehensive understanding, but in brief:

  • Life insurance policies will have a waiting period of 12 or 24 months before they will pay out in the case of a suicidal death. This is to protect the companies from the very desperate attempt of anyone who tries to sign up for cover to pay for their loved ones before taking their own life.
  • Your mental health at the time of application must be disclosed, and you might be refused life insurance if a threat of suicide is apparent.
  • Some life insurance companies will not pay out if the cause of death is related to illegal narcotics. This can have an impact on suicidal deaths.

Fact #4: Some UK policies lose validity if you move abroad

This is a case of checking the small print, but your insurer may choose to make exceptions if you are outside of the UK at the time of death. This tends not to be the case for a holiday or business trip, but a selection of countries, such as some in South America, Asia and Africa, may be excluded if you move there for three months or longer.

It’s worth checking how your life insurance is affected before moving abroad – and it’s not always the countries you expect, with both the Isle of Man and the Channel Islands among those places voiding your life insurance after 12 months!

Fact #5: Being diagnosed with a terminal illness can allow you to claim your life insurance early

A policy will fail to pay out upon death if it’s already been paid out! Many policies allow all or part of the sum insured to be claimed should you be diagnosed with a terminal illness. This gives you the opportunity to use the money yourself if you are struck down in such a devastating way.

Check the terms of your insurance to see if there’s a terminal illness clause involved – there often is.

Fact #6: Reviewing your life insurance is important

Your life insurance will be with you for years, and the chances are you go through many life changes in that time, including moving house, changing job, getting married and raising a family.

Keeping your life insurance company up-to-date with your situation means you will never run the risk of having your life insurance claim rejected due to concealed information.

A quick email or call after every major event also means you can upgrade your life insurance to cover new children or an improvement in salary.

Fact #7: Most term life insurance policies never pay out!

What about the 97% figure from earlier? How could this be true if most policies don’t pay out? Simply because outliving your term life insurance policy is the best scenario you can hope for!

Most term life insurance is set to cover you while you are working and supporting a family, whether it’s decreasing term insurance that secures the family home, or level term insurance to keep the children financially taken care of until they can provide for themselves.

Once your children are all grown up, and the house is paid for, the insurance reaches the end of its term and falls away – never triggering an insurance payout.

Happily, living is the most common reason for life insurance not paying out.

What does life insurance cover you for? Getting life insurance with Unite Life

Life insurance is there to protect your family should the worst happen to you and you are no longer there for them.

At Unite Life, our team of specialist advisors will work with you to understand your personal situation and build a life insurance package tailored to your exact needs, making sure your family doesn’t have to suffer financially upon your death.

Complete our quick and easy contact form or call us today to get cover!

08000 106 194

Unite Life can help you save on insurance – get in touch with us today!

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