Life insurance delivers many benefits to policyholders, including providing financial support to your loved ones after you've gone. However, there are things life insurance does not cover and (on rare occasions) your insurer may refuse to pay out if you pass away. In this article, we'll look at common life insurance exclusions.
Life insurance is a type of insurance that pays money to your dependents if you pass away during the term of your policy. If you pass away, your nominated beneficiary can make a claim. If your claim is upheld, they receive a lump sum which they can use how they wish.
Most life insurance policies also include terminal illness cover, which pays out if you receive a diagnosis of a serious illness with a life expectancy of 12 months or less.
People buy life insurance for many reasons, including providing a financial safety net for their loved ones, or covering outstanding debts like a mortgage if they were no longer around. Policyholders greatly value the peace of mind that having life insurance cover brings.
After you've got a range of quotes and selected the right type of life insurance policy for you, you simply maintain your monthly premiums to your insurance company.
If you pass away during the term of your life insurance cover (or any time if you have selected a whole life insurance policy), your insurer will pay out a lump sum to your nominated beneficiaries. This payment is called your death benefit payout.
You'll also receive a payout if you are diagnosed with a terminal illness with a 12-month or less life expectancy.
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If you pass away, a big factor in whether you're covered by life insurance is the cause of death. Most life insurance policies cover most natural causes of death, such as cancer, heart attacks and strokes. You'll also be covered by life insurance if for accidental death (such as a car crash) and homicide.
However, every available policy will have slight differences. There may be certain circumstances where you won't be covered, or parts of the terms and conditions that invalidate your claim. We'll talk about these later in this article.
If you pass away, your nominated beneficiary or the Executor of your Will should contact your insurance company to make a claim. When you take out your life policy, make sure you tell the people involved, so they have all the relevant documents should the worst happen and you unexpectedly pass away.
The insurance company will request to see some documents, such as the death certificate and proof of coverage. They may need to conduct their own investigations if your death is suspicious.
If your claim is accepted, your beneficiary will receive their payout in around one month. The payment is usually a lump sum. However, some policies pay smaller chunks of your cover amount on a monthly basis. If your policy is written in trust (to be more tax efficient), this may affect your payout too.
If 98% of life insurance claims get paid out, it means that 2% do not. When an insurance company refuses to pay out a life insurance claim, it could be for one of these six reasons.
Life insurance covers death due to many different causes, but not all. Here are some examples of death causes your life insurance company may refuse to pay:
Possibly the most common reason life insurance claims get turned down is due to a pre-existing medical condition not being disclosed when the policyholder bought their life insurance cover.
If you have something in your medical history that you failed to disclose, which later causes you to pass away, your insurer may well turn down your loved one's claim.
Most insurers won't look for a reason to turn down your claim, but they can request access to your medical records and your autopsy if they think you were not being truthful. Honesty is by far the best policy when you apply for your life insurance.
When you take out life insurance cover, it's essential that you keep up with your premium payments. If you miss any payments, your insurer is within its rights to cancel your policy, meaning you'll no longer be covered.
If you have life insurance and you find yourself struggling to keep your premiums paid, inform your insurer, who may be able to help.
Some life insurance policies enforce a waiting period when your cover begins. This is especially common with over-50s policies.
During this period (usually between 12 and 24 months), you won't be covered by life insurance for natural causes of death. Your loved ones will only be able to make a claim if you pass away in an accident.
Taking your own life can make claiming on your life insurance tricky for your dependents.
Not all life insurance policies cover suicide at all. Others will enforce a 'suicide clause' which prohibits a claim on your policy if you take your own life during a specified period after the policy starts (usually 12 or 24 months).
It's not nice to talk about, but this type of clause is to stop people who have already decided to commit suicide from taking out life insurance cover just before they do it.
If you have a term life insurance policy, it eventually expires and you are no longer covered.
Expired life insurance policies do not pay out claims, so make sure you make a note of when your term runs out and, if you wish, take out a new one.
To make sure that your dependents aren't one of the 2% of people in the UK that have a life insurance claim turned down, here are some valuable tips:
When you first take out life insurance coverage, you're sure to receive multiple pages of terms and conditions along with your insurance certificate. While it's tempting to file this and forget it, you'll be much better off if you read it. Each policy is different, so you can't rely on the Ts and Cs being standard.
If you see anything that's inaccurate or something you don't like or don't understand, it's much easier to contact your insurer and sort it out at the start of your policy than it is years later.
If you pass away and your loved ones make a claim on your life insurance, most of the time, it will be a smooth process that results in a lump sum payout. However, if your insurer turns down the life insurance claim and they believe this decision is wrong, there are options.
As soon as possible, your dependents should contact your life insurance firm and register a dispute. Life insurance companies have processes to go through when this happens. They may wish to see new documents or other pieces of evidence around the policy or your passing.
If they still do not get the resolution they require, the final port of call is the Financial Ombudsman Service, which will look into your claim and lay down a final decision.
Disclaimer: This information is general and what is best for you will depend on your personal circumstances. Please speak with a financial adviser or do your own research before making a decision.
Critical illness cover policies typically operate similar exclusions to life insurance cover, such as around non-disclosure of pre-existing medical conditions.
However, when you take out critical illness cover, your insurer will give you a list of illnesses that are covered. Common conditions such as cancer, stroke and heart attack will typically be on the list, but other less common illnesses may not be. Your illness needs to be on your insurer's list for your claim to be accepted, so make sure you read the small print of your policy.
Payout rates do vary between insurance providers, but only slightly.
When we surveyed the life insurance marketplace, we found that Vitality paid out 99.8% of life insurance claims in 2022. Most other firms' payout rates were around 98-99%. The lowest we discovered was Aegon Life Insurance, which paid out 95% of the time.
Most life insurance policies offer terminal illness cover as standard. If you're diagnosed with an illness with a life expectancy of a year or less, you can make a claim. Terminal illness cover has exclusions similar to life insurance. However, some policies may have an expiration date for terminal claims of 12 months before the end of the policy.
As always, check the small print.