One of the most pervasive myths regarding life insurance is the question, "Does life insurance really payout?" It's a natural concern. After all, you're investing your hard-earned money into something you hope your loved ones never have to use. So, let's set the record straight.
Does Life Insurance Payout? The Short Answer: Yes!
Life insurance policies are contracts. When you pay your premiums, the insurance company is contractually obligated to pay the death benefit to your beneficiaries upon your passing, provided the claim meets the policy terms.
Why the Myths Exist
Several factors have contributed to this myth:
Misunderstandings: Some policyholders may not fully understand the terms of their policy. For instance, term life insurance only pays out if the insured dies within the specified term.
Exclusions: All policies have exclusions, like death from self-inflicted harm within a certain period after the policy starts. Such exclusions might lead to denied claims, fueling the myth.
Policy Lapses: If a policyholder stops paying premiums and the policy lapses, the life insurance policy will not payout. This isn’t the insurer refusing to pay, but rather the policy no longer being in force.
Media Sensationalism: Rare instances of insurance companies refusing claims can make headlines, even if millions of other claims are paid without issue.
The Real Numbers
Recent figures from the Association of British Insurers (ABI) show that in 2022, insurance companies settled over 300,000 claims. Impressively, 98% of these claims were approved. Throughout the year, individual life insurance, income protection, and critical illness claims that were successful amounted to a noteworthy £4.64 billion!
A Closer Look: Legal & General
Legal & General, established in 1836, is one of the most popular insurance providers in the world, insuring around 13 million of us.
In 2022, this industry giant further bolstered its reputation by diligently supporting individuals and families. Legal & General settled an impressive 17,768 claims, averaging out to 48 claims daily. Over the course of the year, they disbursed a substantial sum of over £883 million.
Zooming out to a five-year perspective, they've distributed an astonishing £3.8 billion in total. Everyday operations saw them paying out more than £2.4 million daily, affirming their unwavering position as an insurance titan.
Life Insurance | |
|---|---|
Number of claims paid | 12,571 |
Claims paid | 96.7% |
Total paid | £509m |
Average payout | £40,526 |
Maximum payout | £5,000,000 |
Length of policy at claim | 5 days (shortest) 9 years (average) 103 years (longest) |
Age at point of claim | 23 years (youngest) 69 years (average) 103 years (eldest) |
Top 3 Claims:
CANCER | HEART RELATED | NEUROLOGICAL |
|---|---|---|
34.2%
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| 21%
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| 6.1%
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|
This is just a small insight into Legal and General's 2022 statistics, as they are one of the most notable insurers in the country.
If you're diving into the world of life insurance or, like us, are passionate about debunking myths, bear in mind – it's not just L&G. Most insurance providers lay their cards on the table every year in the form of an annual report. Get your teeth into that!
As well as the overall industry aiming to be more honest and transparent, the insurers are constantly monitored and regulated by the government and the Financial Conduct Authority.
Ensuring Your Policy Pays Out
As we covered above, there are situations in which claims aren't paid. If you ever have any questions on what could stop you from getting your life insurance payout, always address these with your adviser before taking out a policy.
Here's our tips:
Honesty is Key - Always be honest when applying for a policy. Non-disclosure of medical conditions or risky hobbies can lead to a declined claim.
Understand Your Policy - Know the terms, conditions, and exclusions. Ask questions if anything is unclear.
Stay Current with Premiums - Set up automatic payments or reminders to ensure your policy doesn't lapse.
Regularly Review and Update - Life changes, like a new child or marriage, might require adjustments to your policy.
In Conclusion
While there are circumstances where a life insurance claim might be denied, the idea that "life insurance doesn’t pay out" is more myth than reality. By staying informed, being honest, and understanding your policy, you can ensure that when the time comes, your beneficiaries receive the support they deserve.