Do life insurance policies actually pay out?

If you ask us, life insurance is one of the most important insurance products you will ever consider buying, because it is all about protecting the most important thing in the world - your loved ones.

Sadly though, when it comes to paying claims it is no secret that the insurance world has a bit of a reputation... and not a particularly good one!

Many hold the misconception that if they take out life insurance, a critical illness plan or income protection cover, the insurance company wouldn’t actually pay out if something were to happen. This can prevent people from purchasing the cover that they really need! How can we feel confident that our insurance company will stick to its promises in our most trying moments?

Well perhaps the stats will help, because contrary to the rumours, life insurers actually pay almost 100% of all claims!

This guide will shed light on the inner workings of the claims process as well as look at three of our best-selling insurance plans to see how they compare when it comes to claims.

Who will the payout go to?

By default, following a successful claim, the payout from a life insurance plan will enter into your estate. Once in your estate, it will be up to the executor of your will to ensure your beneficiaries receive it. 

If you have written your policy in trust, however, then the funds should bypass your estate and be  managed by the person or persons you have appointed as trustees. Your trustees will be in charge of making sure your beneficiaries receive the funds. 

Beneficiaries are the people that you designate when you apply for life insurance. Typically, it involves dependants like close family members, spouses or children.

They can use this money to help cover final expenses, pay off debts, or maintain their lifestyle. Make sure you are clear about who your beneficiaries are and update them regularly regarding any changes.

Does life insurance actually pay out?

Research suggests over two-thirds of policy holders (68%)[1] believe that insurers will do whatever they can to avoid paying out in the event of a legitimate claim - yikes! 

However, the latest facts and figures do not reflect concerns over payout rates, with 87%, 92%, 97% and almost 100% of claims being paid for income protection, critical illness, term life and whole of life insurance respectively in 2019[2] . 

So, it seems there is a disconnect between what people believe and what is actually true. In reality, the answer is simple, insurance companies do pay out in the vast, vast majority of cases. 

But we hear your cogs turning… what about the other few percent? In short, the single biggest reason for claims being rejected is people being dishonest in their application for insurance. But we will come on to that.

Here are some statistics about life insurance claims:

• Aviva, Scottish Widows and Zurich had the highest percentage of claims paid at 99%
   

• The 1% that were declined were largely due to non-disclosure of key medical information during application
   

• Aviva paid out a whopping £731.6m in life insurance claims
   

• Scottish Widows recorded that their youngest claimant was 24 years old and the average age of a claimant was 58.7 years old.
   

• Aviva reported that the most common reasons for claims were Cancer (36.6%), Cardiovascular (19.5%) and COVID-19 (11.8%)

Please note these statistics are based on figures from 2021

Will I definitely get a payout?

Where life insurance is concerned, it is actually pretty clear cut. If you pass away while covered by your policy, you will receive a payout.

There are a few cases where the cause of death may not be covered by the provider, such as someone taking their own life soon after taking out the cover or deaths relating to high risk or illegal hobbies. Generally though, it is pretty black-and-white. 

Details of exactly what is and isn’t covered will be included in your new policy documents, but if you’re unsure you can always call our team of insurance experts on

03456 44 25 40

(Monday - Thursday 9am - 5.30pm, Friday 9am - 5pm)

Critical Illness Cover

Similar to term life insurance, critical illness cover is a product with a start and end date. It pays a lump sum of (tax-free) money if you fall ill with one of a number of serious illnesses, ensuring that, should you receive bad news about your health, you and your family won’t need to worry about the finances.

For critical illness cover, there are a few more factors to consider that determine whether you qualify for a payout and how much money you will receive:

• Is your illness covered by your plan?
   

• Have you been left severely ill or disabled as a result of the illness?
   

• Have you suffered from a pre-existing medical condition?
   

• Do you have permanent symptoms resulting from the condition?
   

• Has the illness been identified and verified by a medical professional?
   

Common uses for this kind of pay-out include home remodels if you now need your home to be more accessible, medical bills or even time off work so that you can focus on what really matters, getting better.

Here are some statistics about critical illness claims:

• Aegon, Legal & General, LV= and Scottish Widows had the highest percentage of claims paid at 93%
   

• The 7% declined were usually down to non-disclosure, or because the illness diagnosed did not meet the definition stated in the insurer’s terms and conditions
   

• Legal & General paid out a massive £209.4m in Critical Illness claims
   

• LV=’s youngest claimant was 24 years old, whilst their average age of claimants is 49 years old
   

• Aegon reported that their top 3 claims were for Cancer (61%), Heart attack (13%) and Strokes (8%)
   

• Of the £34.5m claims for Critical Illness Cover that Aegon paid out, 2% was for Children’s Critical Illness cover.
   

Please note these statistics are based on figures from 2021

Income Protection

income protection cover will replace up to around 70% of your regular income, should you fall too ill to work, meaning you can continue to pay all your bills, cover the cost of life’s little luxuries and maintain your savings. Basically, it’s an insurance plan that removes any financial stress so that you can focus on what matters most, getting better!

Qualifying for a payout is a little more straightforward - you don’t need to hit a long predetermined list of possible illnesses, rather suffer with anything that would prevent you from being able to do your job. That could be a back injury for a builder or stress for a teacher.

For example - if you were off work for 1 year, and your sick pay entitlement was only for 6 months, then you could claim on your income protection policy to receive a monthly benefit for the remaining 6 months. This is of course, if you meet the criteria set by your policy.

Why would a life insurance claim be denied?

There are several reasons as to why a claim might be rejected by the insurer. For example, the policyholder provided false information on the application. Other reasons can be a result of:

Failure to disclose medical information

The insurer needs to be informed about any pre-existing conditions, medications, your medical history, recent illnesses or surgeries, and any lifestyle choices that could affect your health.

If you are not transparent and truthful about your medical history, the insurer may have valid reasons to deny your claim.

If you have any pre-existing medical conditions, e.g. diabetes, cancer, heart disease and high blood pressure, you may be denied insurance cover, or find that life insurance is more expensive. One reason behind this is that your life expectancy may be lowered as a result of these conditions.

If you have a medical condition, please speak to our experienced advisers. They can help you determine which option(s) is available to you, and carefully guide you through the process.

Policy exclusions

Not all types of death are covered under life insurance. The most common exclusions include:

● Suicide: A payout may be denied if the you were to commit suicide within a certain timeframe (usually one year from the policy start).

● Murdered by a recipient: Policies typically prohibit payment if the deceased is murdered by a beneficiary (someone who stands to inherit money from the policy).

Lapses in premium payments

Your policy may be cancelled if the policyholder cannot make regular premium payments. Should a policy lapse because of missed payments, any claims made after the date of the lapse will not be paid out.

It is important to understand the details of your life insurance policy before you purchase it. Also, be aware of any changes or updates that could affect the cover.

If you are facing financial difficulties and can no longer afford your premiums, please contact your insurer as soon as possible to stop the plan from lapsing automatically. They may have a scheme that allows you to keep the cover.

Surviving the policy term

Policies like term life insurance provide cover for a specific period, known as the “term”. If you survive past the end of your term, your life insurance policy will expire and no longer be in force. As such, it will not pay out any death benefits.

Whole life insurance policies, on the other hand, are designed to provide cover for your entire life. There is no policy term, so the policy will remain in force until you die, or no longer need it.

Please note: The insurance products offered by Cavendish Online have no cash-in value at any time. If you stop paying your premiums, your cover will stop, your policy will end, and you will receive no benefit. If you have not claimed before the end of your chosen policy term, the policy will end, and no benefit will be paid.

If you are facing financial difficulty, please contact your insurer before cancelling your policy or letting it lapse. They may have options available that means you don't have to lose the plan.

Death during moratorium period

Some policies have a moratorium period - a waiting period - when the policy first starts. This is typically two years from the start of the policy. Such policies include non-medically underwritten policies, like Over 50s life insurance.

During the moratorium period, the insurer would look to exclude any pre-existing conditions.

Here are some statistics about income protection claims:

• Zurich had the highest amount of claims paid at 99%, followed by LV= and The Exeter at 93% then Aegon at 90%
   

• According to Aegon, all denied claims were a result of non-disclosure at application
   

• Zurich paid out a huge £5.7m in income protection claims
   

• The Exeter confirmed that their top claims were for Musculoskeletal (38.4%), COVID-19 (20.9%), Hip/Knee (9%) and Mental Health (7.1%)
   

Please note these statistics are based on figures from 2021

What can I do to help guarantee a claim?

When you are applying for term life insurance, critical illness cover or income protection, you will be required to go through medical underwriting. Underwriting is a process where you are asked questions about your health, lifestyle and family history.

During this process, it is vitally important that you are as open and honest as you possibly can be. This ensures that the plan is set up correctly from the outset and makes it more likely for you to ensure your claim is successful.

If you are unsure what you should be mentioning on your application form, or if you are concerned that one of your medical conditions may have an impact on your policy, please speak to one of our expert advisers.

Why is it taking so long to get life insurance money?

A policy can take some time to payout (from days to months). In this time, insurers need to review the circumstances of the policyholder’s death and verify their identity before releasing any funds.

When making a claim your insurer may require:

● The policy number
 

● Personal details of the policyholder/beneficiaries
 

● Death certificate
 

● Proof of identity
 

● Copy of the policy document or certificate

Where can I get help with life insurance claims? 

Here at Cavendish Online, we’re all about helping you find the right cover to support you and your family. In a world filled to the brim with myths and misconceptions, we can provide clarity around exactly what policies do and don’t cover, so you’re clear upfront on what would qualify for a payout.

Once you've answered some questions about your lifestyle and health, cover may be arranged in as little as 30 minutes. Our advisers can take any medical information provided to get an idea of what kind of policy you're looking for.

We can also support you if you need to make a claim by:

• Explaining more about your current life insurance or critical illness policies
   

• Providing the best contact numbers for the relevant insurer claims teams
   

• Explaining what additional benefits you have on your insurance policy which could help you or your family at a time of need
   

• Helping you understand how your insurance plan has been set up and how you can go about making a claim.

[1]https://yougov.co.uk/topics/finance/articles-reports/2019/09/12/most-brits-believe-insurance-companies-do-whatever 

 [2]https://www.abi.org.uk/news/news-articles/2020/05/record-98.3-of-protection-claims-paid-out-in-2019/

Learn more about these plans