Life insurance is one of the most selfless of investments, as it secures your loved one’s long-term financial future should anything ever happen to you. It is an investment that requires you to pay a premium every month for the life of the policy, but which will never directly benefit you yourself.
Good for you for being such a thoughtful and generous individual.
So, the last thing you would want is for anything to jeopardize a future payout and render your investment a waste of time and money.
We asked award-winning UK life insurance broker Reassured to run through the five most common reasons a life insurance payout is declined, so that this never happens to you.
Non-disclosure
The most common reason why a payout is refused is as a result of what is called non-disclosure. Non-disclosure is an insurance term used to describe the withholding of information or lying at the time of application. For example, you are a heavy smoker but in order to secure a lower premium, you state on your application that you do not smoke.
You may be surprised to learn that an insurer has the right to investigate your passing and can even request medical records to help determine the cause of death, potentially refusing to pay a claim.
From our experience, non-disclosure is most common when it comes to withholding information regarding a pre-existing medical condition. As a result, it is absolutely vital that you are open and honest at the point of application, so that your selfless investment is fully realized after you are gone.
Not keeping up with your premiums
Unfortunately, in order for your policy to remain valid, you as the policyholder need to keep up with your premium payments.
If, for example, you pay your premiums for 19 years of a 20-year term, but stop paying in the 20th year and then you pass away, your loved ones will not be able to make a successful claim. That is why it is so important to make sure when you set up the policy that it will still be affordable later in life too.
If you are having financial problems or if you lost your job, it is best to contact your life insurer directly to inform them. After talking to your insurer, you may be able to secure a waiver of premium or payment holiday, enabling your policy to remain valid.
Suicide
Unfortunately, suicide is very prevalent in our society. In 2018, there were 6,507 suicides registered in the UK alone, which is 11.2 deaths per 100,000 population (source: ons.gov.uk). Suicide is much more common in men too, accounting for ¾ of deaths.
Actually, most life insurance policies will pay out if the cause of death is suicide. However, there is a very important IF to consider. Insurers enforce something called a suicide clause. What this means is that the policy must have been active for a certain length of time before a payout is eligible. This is often 2 years.
Policy exclusions
Some life insurance policies have something called exclusions. An exclusion is written into a policy by a manual underwriter as a result of something they see as an increased risk. For example, if you are a recovering alcoholic, a policy may include an exclusion which states the policy will not pay out if the cause of death is liver failure.
It is also possible for exclusions to be written into a policy to protect the insurer if the policyholder moves to a high-risk country after the policy has been taken out, which statistically increases the likelihood of a claim.
Qualifying periods
Some policies, especially over-50 plans, come with what is called a qualifying period (sometimes referred to as a waiting period). This is a specified period of time at the beginning of a policy where the policy will not pay out if you pass away as a result of natural causes.
A qualifying period is usually 12 or 24 months–check with your individual insurer. If you do pass away within this initial qualifying period, the premiums you have paid will at least be returned to your beneficiaries.
A qualifying period protects the insurer from very sick people taking out a policy when they know they do not have long left to live. It is important to state here that if you pass away as a result of an accident, your loved ones will be able to make a claim.
99.6% of all claims are paid out in full
Don’t let this article put you off from securing the future of your dearest and dearest with life insurance coverage. According to Association of British Insurers (ABI), 99.6% of life insurance claims were paid out in 2017. So, in reality, it is very rare for claims to be declined, but it does happen (hence this article).
That said, it is always best to be totally open and honest on your application to maximize the chances of a full payout, so that your loved ones can benefit as much as possible from your selfless provision.
Life insurance has many benefits, as it can help meet family living costs, clear a mortgage debt (enabling the family to remain in their home), provide an inheritance, or cover rising funeral costs.
What’s more, if you are young and healthy, you can secure comprehensive coverage from under 20p a day. Our advice: if budget allows, lock in these super-low premiums for a significant term length while you are still young. Then get on with enjoying your life safe in the knowledge that your loved ones are protected whatever the future may hold.
