By Matthew Horan CeMAP · Protection
Quick answer: The large majority of life insurance claims are paid, but not all of them. Claims are most often declined or reduced because the policy holder didn't give accurate information when they applied, the policy had lapsed, or the cause of claim wasn't covered. Most of these are avoidable. Answering every question honestly, keeping the policy going and checking what's covered can make a big difference. Clarity Mortgages & Protection in Altrincham gives fee-free advice on mortgages and protection together, with no obligation.
When you take out life insurance, usually to protect your mortgage and your family, you're paying for the promise that it will be there when it's needed. So it's a fair question: will it actually pay out?
Insurers publish their claims figures, and most claims are paid. But when a claim is declined, it's often a shock to the family at the worst possible time. The good news is that the common reasons are well known, and most can be avoided if you know what to look out for.
The most common reasons claims are declined or reduced
1. The application wasn't accurate
This is the big one. When you apply, the insurer asks about your health, lifestyle and circumstances, and uses your answers to decide whether to offer cover and at what price. UK law expects you to take reasonable care to answer these questions accurately.
If something important was left out or wrongly stated, the insurer may reduce the claim or, in more serious cases, decline it. The insurer's response depends on whether the mistake was careless or deliberate, and what it would have done had it known the truth.
Things people commonly forget or get wrong include:
Past medical appointments, tests, referrals or conditions, even if they seemed minor at the time
Smoking or other nicotine use, and how much, as the insurer defines it
Alcohol intake
Your occupation, or hazardous hobbies and activities
Family medical history, if asked
Other life cover you already have
If you're not sure, say so. It's far better to give more information than less.
2. The policy had lapsed
Life insurance only pays out if the policy is in force. If you stop paying premiums, the cover usually ends, and most term policies have no cash-in value. Direct debit problems can cause this unnoticed, for example after changing bank account.
3. The death happened outside the policy term
Term life insurance covers a set period, such as the length of your mortgage. If the policy has ended, there's no claim. This is one reason to check that the term matches your mortgage, particularly if you've moved to a new deal or borrowed more.
4. The cause wasn't covered
Most policies have some exclusions or limits, which should be set out in the policy documents. These might relate to certain activities, undisclosed risks or specific circumstances. It's important to read these, or to ask your adviser to explain them in plain English.
5. The policy was the wrong type
Sometimes the problem isn't a declined claim but cover that never fitted. Life insurance only pays on death (and usually terminal illness). It doesn't pay if you're seriously ill or can't work. That's why we look at which cover protects your mortgage as a whole, and why mortgage-only life insurance can leave gaps.
What about critical illness and income protection claims?
The same principles apply, plus a few extras:
Critical illness cover pays out for the conditions listed in the policy, as defined by the insurer. A serious illness that isn't on the list, or doesn't meet the definition, may not be covered. Definitions vary between insurers, so it's worth comparing them.
Income protection pays if you can't work, as defined in the policy. Some policies look at your own occupation, others at any occupation. The wording makes a difference, so it needs to be explained properly.
How to give your family the best chance of a smooth claim
Answer every question honestly and completely. If in doubt, give the detail.
Keep your own copy of your application. It helps if questions are ever asked later.
Read the policy documents. Check the exclusions, the term and the amount of cover.
Keep paying. Check your direct debit regularly, and tell the insurer if your bank details change.
Match the cover to your mortgage. Make sure the amount and the term still fit, especially after re-mortgaging or borrowing more.
Tell your family where it is. A policy no one knows about can go unclaimed.
Review it as life changes. A new baby, a marriage, a separation or a career change are all good moments to check.
Writing your policy in trust
A life insurance policy can often be written in trust. This means the money is paid to your chosen beneficiaries rather than becoming part of your estate. Depending on the circumstances, that can help the payout reach your family more quickly, and may have inheritance tax benefits. It isn't right for every situation, so it's worth discussing with your adviser.
Why using an adviser can help
An adviser can't guarantee a claim will be paid, and the insurer always makes the final decision. But a good one can:
Go through the application questions with you, so nothing is missed
Compare cover from a range of insurers, including how each treats health conditions
Explain exclusions and definitions in plain English
Make sure the cover matches your mortgage, and review it when things change
Help your family with the claims process if the worst happens
When the same adviser looks at your mortgage and your protection, the two fit together. If you're buying for the first time, our post on protecting your mortgage as a first-time buyer explains when to arrange cover.
Frequently asked questions
Does life insurance always pay out?
No. Most claims are paid, but some are reduced or declined, most often because of inaccurate information at application, a lapsed policy or an excluded cause. Many of these are avoidable.
What happens if I forget to mention something on my application?
It depends on what it was, whether the mistake was careless or deliberate, and what the insurer would have done had it known. The result could be a reduced pay out or a declined claim. This is why it's best to be thorough.
Can I get life insurance if I have a health condition?
Often yes, though it may affect the price or terms. Always tell the insurer about it. Insurers treat conditions differently, so an adviser can help find one that does so fairly.
Does life insurance pay out for any cause of death?
Most policies cover death from most causes, but there can be exclusions or limits. Check your policy documents or ask your adviser.
Does life insurance pay out if I stop paying?
No. If the policy lapses, it generally stops covering you and most term policies have no cash-in value. It's important to keep up your payments.
How long does a life insurance payout take?
It varies by insurer and circumstances. A policy written in trust can sometimes be paid faster because it doesn't have to wait for probate. Your adviser can explain this.
Does it cost anything to speak to you?
No. We don't charge a fee for our advice. We're paid by the provider if you go ahead.
If you'd like to check your cover is set up properly, or you're not sure what you've got, get in touch. It's fee-free with no obligation. We help clients across Altrincham, Trafford and Cheshire.
About the author
Matthew Horan CeMAP is Principal of Clarity Mortgages and Protection, an independent, fee-free mortgage and protection broker based in Altrincham. He has over 10 years' experience helping individuals, families and business owners with mortgages and protection, and writes in plain English because most people aren't given the chance to understand what they're signing.
Your home may be repossessed if you do not keep up repayments on your mortgage or any other debts secured on it.
This article is general information, not advice. What's right for you depends on your own circumstances. Protection policies may not pay out in all circumstances and have exclusions and limitations, so check the policy terms. Most protection policies have no cash-in value if you stop paying or the term ends. Tax treatment depends on your individual circumstances and may change. Trusts are not regulated by the FCA.
