Do life insurance policies actually pay out?

Do Life Insurance Policies actually pay out?

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If you ever speak to our mortgage advisers, life insurance and mortgage protection is one of the most important products you will ever buy.

Life insurance claims are important to understand when you are putting a policy in place.

If you are deciding to put a policy in place, of course it is important to know whether if the life insurance policies actually pay out and you are able to make a successful claim.

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!

In this article, we will expand on life insurance claims paid as well as what you need to know.

Life insurance Policy

What is life insurance?

Life insurance, much like any form of insurance, is all about providing that all-too-important peace of mind, a level of certainty that everything’s going to be okay, whatever life throws at you.

In short, it will pay out a tax-free lump sum of money if you die. It sounds a bit morbid, but, really it’s a very positive thing, because it’s there to provide a financial safety net for the people you love during a difficult time.

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!

Last but certainly not least, Critical illness insurance works in a similar way but 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.


How much life insurance do you need?

This will vary depending on your circumstances. How much is left on the mortgages owed? What your monthly household outgoings are each month?

£146,427 in July 2022 reflects the average mortgage balance per house for the United Kingdom. As a minimum we would recommend protecting this but after we have had a discussion we can advise you on our other recomendations.



Do life insurance policies actually pay out?

Protection pay-outs rise again

Protection pay-outs for bereavement, illness and injury claims reached £6.8 bn in 2021, a second consecutive yearly high.

The record-breaking figure means that, on average, more than £18.6m was paid out every day in life insurance, income protection and critical illness claims.

In another turbulent year, protection continued to provide crucial support to millions of people.


Bigger pay-outs

This is the third year in a row where the overall average individual pay-out has increased, rising by 9% year-on-year to reach £14,994.


Specifically, for term assurance, the average claim payment was £61,944, roughly in line with 2020’s figure. Likewise, the average critical illness claim payment was little changed from a year earlier at £67,500.


Claims paid

98% of individual and group claims were paid in 2021, highlighting the widespread support provided by protection policies.


Once again, ‘non-disclosure’ was the main reason for an individual protection claim being rejected. This occurs when a customer fails to provide information about something that might have influenced the insurer’s decision to provide cover or the price of that cover.


COVID effect

2021 was, of course, significantly impacted by the pandemic. In times of turbulence, the importance of protection policies comes into even sharper relief.

Indeed, pay-outs for COVID-19 related individual claims almost doubled in 2021, reaching a total of £261m. The increase was driven mostly by the 69% increase in term assurance claims.


Ups and downs

One especially noteworthy trend in 2021 was the 40% rise in claims for musculoskeletal conditions, which, analysts suggest, could be linked to the higher number of people working from home in unsuitable work environments.


In contrast, there were 20% fewer claims relating to mental health in 2021.

Despite the drop, mental health claims remain above their 2019 level, showing how protection policies continue to support people throughout the pandemic.


More than a number

Term life insurance pays a lump sum to cover costs if the policyholder dies unexpectedly or prematurely; income protection supports you if you are unable to work due to illness or injury, while critical illness cover pays out if you are diagnosed with a specified illness.

All three provide vital protection for you and your family, making sure you can meet financial commitments and giving you the peace of mind that your loved ones will not face hardship. Behind the headline facts are millions of families given support when they needed it most.

As with all insurance policies, conditions and exclusions will apply

1 Association of British Insurers (ABI) and GRiD


Do I Need Life Insurance?

Why would a life insurance claim be denied?

As we have already alluded to, the single biggest reason for claims being denied is incorrect or out of date information on the policy application.

When you apply for an insurance plan, you are asked to provide some information about your health and lifestyle, which enable the insurer to determine a) whether they are able to insure you and b) how much this cover will cost.

Insurance is not there to protect you against the inevitable, only against the risk of something maybe happening.

Examples Of Exclusions found in life life insurance policies

Death By:

  • A criminal act
  • Suicide within the first year or two of the policy
  • Alcohol or drug abuse

There might be other exclusions, these will be detailed within the life insurance policy terms and conditions.

So, if you apply for insurance cover stating that you are in full health when, in fact, you have already been diagnosed with a severe illness, then the insurer has every right to refuse your claim for a payout.

Similarly, if you say that you don’t smoke when you do, or hide the fact that you actually have a career juggling fire on top of skyscrapers with no harness, or already have a terminal illness and then pass away, then you are providing false information to the insurer.

If you lie on your application or fail to update them about a significant change in your circumstances, then you risk not qualifying for a payout. But that’s fair enough, right?

The bottom line is, understanding what your policy covers and what it does not, and being one hundred percent honest with pre existing illnesses on your application for an insurance plan are the best ways to make sure that you will receive the support you need, when you need it.

Insurers want to pay out on all fair claims – we hope that the stats we have given here have reassured you of this when you potentially need to make a claim.


Where can I get help with life insurance claims?

Here at Alexander Southwell Mortgage Services, we’re all about helping you find the right cover to support you and your family.

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.


To Conclude, from the understanding of the payout rates from the life insurance companies

  1. Successful life insurance claim rates are very high and often above 95% of all claims received
  2. If you want to make sure you life insurance policy pays out and is not declined, complete the application form honestly. Disclose full medical history.
  3. Make sure you check policy details so that the premiums, beneficiaries, monthly payments and the pay out cash value is all correct prior to starting any policy.

How do I put a life insurance policy in place?

If you decide that you would like to apply for a life insurance policy, Alexander Southwell, our advisers will be with you every step of the way and see your life application through to completion.

Related Mortgage Guides – Do life insurance policies pay out?

Do I need to get life insurance to get a mortgage?


Life Insurance Policies


Approved by The Openwork Partnership on 8th February 2023

Jamie Alexander Mortgage Broker & Advisor
Jamie Alexander

At Alexander Southwell Mortgage Services we pride ourselves on giving easy to understand advice, removing unnecessary information to ensure getting a mortgage doesn’t become a tedious task around your general day to day routine. We aim to help you now, in the future and provide a service you would recommend to friends and family.

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