Common Reasons Life Insurance Does Not Pay Out
People buy life insurance policies to ensure their family’s well-being once the person isn’t around to provide. For others, it’s a well-being plan rather than a safeguarding policy.
However, there could be various reasons life insurance won’t pay out. Life insurance is one of those investments that, when done right with careful planning, can change the fortunes of entire families and the generations to follow.
Misunderstand the policy exemptions; nobody will see a penny of what you thought was a wise investment.
According to the report by ABI, the UK is the leader in the insurance industry in Europe, and 97% of life insurance claims are accepted and paid successfully.
However, for any policy, there will be exceptions to the rules regarding when the policy pays. Knowing these exceptions will financially protect you and your family when you are not around.
Does A Life Insurance Claim Always Pay Out?
The Association of British Insurers pointed out in their report that in 2021:
- 98% of protection claims were paid out;
- 97% of term life insurance claims were paid out;
- 92% of critical illness claims were paid out.
The high percentage of life insurance claim acceptance is very reassuring. However, there are still a few percentages left that indicate life insurance payment was at some point rejected. You should know under what circumstances it happened to avoid it yourself.
Life Insurance Policies Exemptions
We should probably point out that these aren’t in place to diddle the customers out of what would otherwise be rightfully theirs. These exclusions apply to life insurance policies and critical illness cover for fraud prevention.
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Three Reasons Life Insurance Won’t Pay Out
1. You Outlive the Policy
Often considered, the main reason why life insurance will not pay out is outliving the policy. This applies to term life insurance policies. Anyone with a fixed-term policy needs to ensure they consistently have coverage.
Taking out a 20-year term life insurance policy at the age of forty would only be valid if you die before you reach your 60th birthday. That’s probably not a wise choice to invest in.
After your term policy expires, you must renew a new policy under your new conditions. Age 60, plus whatever medical conditions you’ve developed, must be disclosed. The only thing you can count on is the premiums being higher. That is if you use a like-for-like product by renewing your term life insurance.
When a term life insurance policy expires, a more suitable option is the over 50s cover. This life insurance cover doesn’t require any medicals, and in most cases, it is suitable for people up to the age of 75.
You can always choose not to renew, but you’d throw away the previous payments towards the policy above. For that reason, you should consider the fixed term period of a life insurance policy wisely before you sign because outliving it is a bit like throwing it away.
2. Suicide
This one may surprise you. It’s not unusual to find it excluded, but some life insurance providers only apply this clause to the first 12 months of the policy.
Every company has safeguards against this type of claim for apparent reasons. Take the case of David Carr – a City Executive from London – who meticulously planned and waited until the first-year suicide clause had passed before taking a shotgun to his head.
Another thing about the suicide clause is even if the stated period has passed, if a tragic suicide were to happen to a policyholder, it’s likely to have some crossover into the following reason after the 12-month exclusion.
For this very reason, life insurance companies may be reluctant to provide a life insurance policy to a client who struggles with mental health problems. Life insurance coverage is likely void if you neglect to mention suicidal thoughts.
If a policyholder takes their own life, an insurance company will not pay out. Most life insurance policies have this safeguard in place against people willing to commit suicide to ensure financial stability for their families.
3. Non-disclosure
One of the most common reasons life insurance won’t pay out is not disclosing information. Otherwise called dishonesty, and depending on the nature of the dishonesty on the policyholder’s application, it could very well be downright lying.
It could cross over into the suicide clause of policies if the person were to take out the insurance plan without disclosing a mental health condition.
A poll carried out by Zurich Insurance found that 20% of UK life insurance policyholders had admitted to lying on their applications. Ten percent state that fear of the consequences of not telling the truth is worse.
Another interesting point that the poll highlighted was that 32% of applicants are more comfortable lying on online applications rather than over the phone. If you are tempted to spin some words to camouflage the truth – think of your family and don’t do it.
It would be devastating to pay monthly premiums for 10+ years and not receive a payout simply because you forgot or didn’t mention some details on your life insurance application.
Mentioning you have a terminal illness, addiction, or something insignificant like frequent headaches is worth saying to policy providers.
Although you may be refused a life insurance policy if you have mental health problems such as anxiety or a severe illness, with Insurance Hero, you can compare plans from the leading life insurance companies suitable for your situation.
How Long Does It Take for Life Insurance Claims to Pay Out?
If your life insurance claim is valid, your family can expect to collect a payment within a few months, typically up to 60 days.
An insurance company might take a few weeks or months to investigate a case, including the death certificate and identity of beneficiaries, to verify the validity of a claim.
Upon your death, your beneficiaries will be paid out in one of the three ways:
- Lump sum – a fixed amount distributed to beneficiaries equally;
- Instalments – beneficiaries receive monthly payments for a specific time;
- Retained asset account – your insurance company keeps the money in an account that earns interest and can be withdrawn by check.
Frequently Asked Questions
Does life insurance payout when travelling abroad to countries with illness outbreaks?
The purpose of travelling abroad can be the reason why life insurance will not pay out. Travelling to Rome for a sightseeing vacation might be judged differently from flying to Nepal to climb mountains.
Different providers also differentiate countries and categorise as:
- Acceptable for travel
- Acceptable for travel with limited coverage
- Unacceptable for travel
Most insurers will have a list of countries they advise against visiting based on several factors. If you are an avid traveller, ask your life insurance company what locations are deemed dangerous and whether a death claim would remain valid.
The outcome changes if you live in another country with a UK life insurance policy. Moving abroad while having a mortgage or a business in the UK will let you keep your policy. However, if you have no valid reason to keep it, an insurer will refuse to pay the cover.
For more information, contact Insurance Hero to check available insurance policies.
When does life insurance not pay out?
The most common reason why life insurance will not pay out is outliving the policy. Other factors include death by suicide and non-disclosure of valuable information.
How would life insurance deny a claim?
Paying attention to clauses and small print will prevent you from misunderstanding the policy. After an insurance holder dies, beneficiaries file a claim that can be paid or denied.
There is a waiting period when the insurer investigates the policy documents, death certificates, beneficiaries, and other things to determine the validity of a claim.
If there were misconduct from the policyholder’s side, it would be the claim denial’s culprit. The reasons why life insurance will not pay out are described above.
