Jeffrey Wade
Life insurance is a type of insurance that pays money to your dependents if you pass away during the term of your policy. While 96.7% of life insurance claims in the UK are successful, there are certain instances that can cause a claim to be voided or declined. This paragraph will explore the various reasons why a life insurance policy may not pay out.
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What You'll Learn
Non-disclosure and fraud
Insurers may also deny a claim if undisclosed health conditions or other discrepancies in the policy application are discovered after the insured's death. This is known as the contestability period, which typically lasts for the first two years of the policy, and allows the insurer to investigate the cause of death and access medical records. If non-disclosure or fraud is discovered during this time, the insurer may refuse to pay out.
In addition to medical conditions, it is important to disclose any risky activities or behaviours, such as dangerous hobbies or occupations, as these may also impact the insurer's decision to pay out. Failure to disclose such information could result in the policy being cancelled or the claim being denied.
Furthermore, it is essential to keep your insurer updated on any changes in your life, such as moving to a different country, as some policies may become void if you live or travel outside certain areas for extended periods. Being honest and transparent with your insurer is the best way to ensure your life insurance policy remains valid and your beneficiaries receive the intended benefits.
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Suicide within the first two years of the policy
Suicide is a sensitive topic, and if you or anyone you know is struggling with mental health issues, there are free, confidential services available 24 hours a day, seven days a week. For instance, in the US, you can call 988 or text or call the Suicide & Crisis Lifeline.
In the UK, most life insurance policies include a suicide clause that prevents the insurer from paying out to beneficiaries if the policyholder's death was due to suicide or self-inflicted injury within a certain period from the start of the policy. This period can last from one to three years, but it is typically two years. The clause is designed to prevent someone from purchasing a policy and immediately taking their own life so that their loved ones can receive financial benefits.
If the suicide exclusion period has ended, life insurance can cover suicide and pay out the death benefit, provided no terms in the policy have been violated. The policy may pay out for suicidal death if there is no suicide clause or if the clause is no longer in effect, and the insurer finds no other reasons to contest a claim.
It is important to note that switching life insurance policies restarts the suicide clause and contestability period, even if you purchase the new policy from the same company. Additionally, failing to disclose information in a life insurance application can be considered life insurance fraud.
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Terminal illness within 12 months of the end of the policy
Terminal illness cover is a feature of many life insurance policies in the UK. This type of cover pays out a cash lump sum to the policyholder if they are diagnosed with a terminal illness and given a prognosis of 12 months or less to live. This allows the policyholder to make plans and take care of their dependents before their death.
Terminal illness cover is included as standard with many life insurance policies, but some insurers offer it as an optional extra for an additional fee. It is important to check the small print of your policy, as some policies may have an expiration date for terminal claims of 12 months before the end of the policy.
If a policyholder makes a successful claim but then survives beyond 12 months, nothing is owed back to the insurer. However, once a successful claim has been made, there is no additional payout when the policyholder dies. An insurer could refuse a terminal illness benefit claim if it is made in the final months of a policy. In other words, if the policy's original term is due to come to an end before the policyholder is expected to die, the payout may not be forthcoming.
Policyholders diagnosed with a terminal illness are under no obligation to make a claim. If they prefer, they can allow their policy to run until their death, after which it would pay out as normal. However, terminal illness benefit can help to make the end of a policyholder's life more comfortable and less stressful if they are unable to work and lose their income.
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Risky activities and behaviours
When applying for life insurance, it's important to be honest about any risky activities or behaviours you engage in. These could include dangerous hobbies, occupations, or lifestyle choices such as alcohol consumption and smoking. Failing to disclose this information could result in your policy being cancelled or your beneficiaries not receiving a payout.
Insurers define "risky activities" as pursuits that increase the chance of an accident or injury. This could include activities such as skydiving, bungee jumping, rock climbing, racing, or any other extreme sports. If you engage in these activities and do not disclose them, your insurer may refuse to pay out in the event of an accident.
Occupations that are considered high-risk can also impact your life insurance. For example, if you work in a dangerous industry such as mining, fishing, or construction, your insurer may view this as a risky behaviour and adjust your policy accordingly. Similarly, if you have a job that requires frequent travel to dangerous locations, this could also impact your coverage. It's important to be transparent about your occupation during the application process to avoid any issues in the future.
Lifestyle choices, such as smoking and alcohol consumption, can also be considered risky behaviours by insurers. These behaviours are associated with increased health risks, which can impact your life expectancy. Failing to disclose these habits could result in a rejected claim or a cancelled policy.
In addition to these activities and behaviours, living or travelling outside certain areas for an extended period can also impact your life insurance. Some insurers may have restrictions on long-term stays outside of specific countries or regions, such as the EU, USA, Canada, Australia, New Zealand, the Isle of Man, or the Channel Islands. Make sure to review your policy carefully to understand any geographical limitations.
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Failure to pay premiums
Life insurance policies require regular premium payments to remain active. If you are unable to pay your premiums on time or miss a payment, there can be serious consequences, depending on the terms and conditions of your policy.
Grace period
Every life insurance policy has a grace period, typically lasting 30 days from the payment due date. During this time, your coverage will continue, and you will remain insured, as long as you make the payment and the insurance company processes it within the grace period.
Policy lapse
If you do not pay your premium by the due date and your grace period expires, your policy will lapse and is no longer active. This means that your beneficiaries will not receive a death benefit if you pass away, and the insurer will not refund any premiums you have paid in the past.
Reinstating your policy
In some cases, you may be able to reinstate your policy. Each insurance company has its own guidelines, but most will allow you to apply for reinstatement for up to five years from the end of the grace period. You will need to meet certain requirements, and a medical examination may be necessary.
Options for financial hardship
If you are unable to afford your premiums, it is important to contact your insurer immediately. They may be able to offer support to ensure your policy remains valid, such as a waiver of premium benefit if you are incapacitated and unable to work due to illness or injury. You may also be able to cash out your policy or agree to a reduced death benefit that no longer accumulates cash value.
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Frequently asked questions
A suicide clause prevents the insurer from paying out the claim if the insured's death was due to self-inflicted injury within a certain period from the start of the policy, typically the first two years.
If you outlive your life insurance policy, you will not receive anything upon your death. For example, if you take out a 40-year policy at the age of 30, you are only covered until you are 70 years old.
Missing a premium payment can result in the expiration of your life insurance. Therefore, to ensure your life insurance is valid, it's important to ensure all premium payments are up to date.
If you fail to disclose important medical information, your policy may be cancelled and your coverage may be voided.
