What does life insurance not cover?
What is life insurance?
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.
You can find out about life insurance in more detail in this article from MyTribe Insurance.
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.
35% of UK residents currently hold life insurance – Source
How does life insurance work?
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.
Causes of death covered by life insurance
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.
In 2021, 98% of life insurance claims were paid out by insurers – Source
How your life insurance policy will pay out
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.
6 reasons life insurance policies may not pay out
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.
Cause of death exclusions
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:
Dangerous sports – If you pass away due to a lifestyle choice, such as indulging in a risky hobby like skydiving or rock climbing, your claim may be invalidLifestyle choices – If you pass away due to heavy drinking or dangerous drugs, your insurance company may not pay outCriminal activity – If you’re committing a crime when you pass away, this may invalidate your claimPassing away abroad – Your life insurance may not be valid in other countries in the world, particularly if they’re considered dangerous
Non-disclosure of pre-existing conditions
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.
Missing premium payments
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.
Passing away during the waiting period
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.
Suicide clause
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.
Outliving your term life insurance policy
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.
“I recently got an insurance policy through myTribe and the service was excellent from start to finish. The adviser that I spoke to was very patient and took time to explain all of the intricacies to me so that I felt confident and informed when making a decision.”
by Chris Stratton – 12th May 2022
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How to maximise your chances of a life insurance payout
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 your policy, be 100% honest with your insurer about any pre-existing conditions. Even if you think it’s not important now, it could be your downfall if it causes you to pass away years laterIf you’re unsure about your medical history, consult your doctor, who should have all the necessary informationYou should also be 100% honest about your lifestyle choices around alcohol and smoking, as well as your occupation and any dangerous activities you enjoyKeep up with your life insurance premiums. If your income is volatile, consider taking out a premiums waiver which guarantees your cover if you miss some payments due to inability to workPlace your life insurance in trust. When you do this, it’s not considered part of your estate when you pass away. This means it’s usually exempt from inheritance tax. It also speeds up the time it takes for your dependents’ claim to go through
Read the small print
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.
What to do if your payout is declined
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.
