10 Reasons Your Life Insurance Won't Pay Out
Last updated: 28/07/2023 | Estimated Reading Time: 8 minutes
Life insurance acts as a security blanket for your loved ones when you’re no longer around to provide for them. So, when policies don’t pay out as expected, it can be very distressing for everyone involved.
The good news is that most life insurance claims are successful, and when claims are denied, there’s usually a good reason behind that decision. To give your family the best chance at receiving their intended payout, pay close attention to these 10 reasons life insurance won’t pay out.
Much of what invalidates life insurance can easily be prevented with a little bit of planning and extra care when taking out a life insurance policy. Others may be unavoidable, but it’s best to educate yourself and those around you so nobody is caught out unprepared.
Your life insurance policy will only be valid as long as you keep paying your premiums. Falling behind on your payments or even missing a single instalment can impact your family’s final payout. In some instances, your beneficiaries may receive a smaller sum of money, while in others they may receive no money at all.
If you’re struggling to pay your life insurance premiums, or know that your financial situation is about to change, you should contact your life insurance provider as soon as possible. It’s always best to try and negotiate a solution before you’ve started missing payments, as this can cause your policy to be cancelled.
Some life insurance providers may be able to help you to reduce your premiums by adjusting your plan. This might mean shortening the term or reducing the amount of cover you have. If you have permanent life insurance, you may have the option of cashing out your policy.
If you’re worried about not being able to pay your life insurance premiums in the future, consider adding a waiver of premium benefit to your policy. This would mean that in the event that you are seriously ill or injured and unable to work, you wouldn’t have to keep paying your premiums and your policy would remain valid.
When you take out life insurance, you’ll need to disclose information about your health and lifestyle. This information is used to calculate your premiums and decides the type of cover you’re eligible for, so it’s very important to answer every question honestly.
Withholding information or misrepresenting your health or lifestyle can lead to your policy being invalidated in the future. Regardless of how small a detail might seem or whether you think your life insurance provider won’t find out, it’s important to disclose everything your provider wants to know.
For example, if you’re a smoker and fail to inform your life insurance provider, your family may not receive a pay out after your death. This is especially the case if the cause of your death is directly linked to smoking, such as lung cancer or heart disease.
Exclusions in life insurance policies are relatively common, especially if you have a pre-existing medical condition. For instance, if you have epilepsy, your life insurance may only cover you if you die from an unrelated cause. If you were to die during a seizure, your family would not receive a payout as the exclusion clause in your policy would be triggered.
Many life insurance policies also have exclusion clauses for high-risk activities, such as sky-diving or mountain climbing, meaning that if you were to die while performing one of these activities, you would no longer be covered.
You may be able to get life insurance with fewer exclusion clauses and pay higher premiums, but this will depend on your provider and your overall health. Always read your exclusions carefully and question whether it’s possible to get more comprehensive cover if you’re worried.
One of the most common reasons life insurance won’t pay out is because you’ve outlived the term of your policy. Most life insurance policies only cover you for a specific period of time which is laid out when you first speak to your provider. Term life insurance usually lasts between 10 and 30 years, but once this time has elapsed you will no longer be covered if you die.
Term life insurance is popular because many people don’t need cover after a certain point in their lives, such as after they’ve finished paying off their mortgage or once their children have grown up. However, if you would like to be covered indefinitely, you could consider whole life insurance. This is typically more expensive than a term policy, but your family should receive a payout regardless of when you die.
While suicide is covered by many types of life insurance, most of them include a suicide clause that means policyholders won’t always receive a payout. Typically, the suicide clause requires between 12-24 months to have passed after taking out the policy before suicidal death can be covered. Some life insurance providers may also be reluctant to cover suicide if someone has a history of suicidal behaviour or severe mental illness.
Similarly to the suicide waiting period, other types of life insurance come with a waiting period as well. This is especially common in policies for people with pre-existing medical conditions or people taking out over 50s policies.
The waiting period is usually between 12 and 24 months and means that deaths due to natural causes will not be covered during this period. Some policies will pay out for accidental deaths during this time, but it will depend on your provider. Not every life insurance provider enforces a waiting period and some of them will be much shorter than others, so it’s always a good idea to compare policies before making a commitment.
In most cases, being diagnosed with a terminal illness won’t prevent your life insurance from paying out. Unless your terminal illness is part of an exclusion, your family should receive a payout after you die.
Some life insurance policies also allow you to withdraw money from your life insurance while you’re still alive. This is called terminal illness cover (or an accelerated death benefit) and can either be available as an add-on or included in your policy. However, in certain circumstances, terminal illness cover will not be valid if your policy is expiring in a year or less. This means you wouldn’t be able to withdraw any money yourself, but your family would still receive a payout if you died within the policy’s term.
If you’re thinking of retiring abroad or moving to another country for work, it’s important to check the terms of your life insurance policy, as you may need to take out new cover. Short stays abroad should be no problem, but a more permanent move, or a change in your residency or citizenship, can cause problems.
It’s difficult to find a policy that covers both staying in the UK and moving abroad, but if your move is coming up soon, you may want to look into British expat life insurance. Never assume that your current policy will continue to cover you while you’re overseas without checking your documentation and speaking to your provider.
Many people don’t know that they need to keep their life insurance provider updated with any changes to their health or lifestyle. But failing to do so could invalidate your policy, especially if you develop a serious condition or participate in harmful behaviours such as excessive drinking or drug use.
It can be tempting to keep quiet, especially if you were initially in good health when you took out your life insurance. Informing your provider of changes to your health could increase your premiums, but the alternative is to conceal information and forfeit your family’s payout.
It’s also important to review your life insurance as your family grows or your financial situation changes. For example, if you have mortgage life insurance, you will need to inform your insurer about any changes to your debt. Moving to a larger house and taking out a bigger mortgage will mean you need more cover. The last thing you want is for your policy to pay out too little when your family was relying on it to keep a roof over their heads.
After you die, your beneficiaries will need certain documents to make a claim on your life insurance. If they don’t have these, or don’t have the right details to access your life insurance, they may be refused a payout. The most common documents needed are:
Ask your life insurance provider in advance what your loved ones will need to make a claim and let them know. It will also make it easier for your beneficiaries to access their payout if they have your life insurance account details or policy number.
Your life insurance provider isn’t trying to trick you out, so your family should receive the payout they expect as long as you follow the terms and conditions of your policy. Your best chances at a successful claim lie in the policy that you choose and whether it suits your individual circumstances. If you need more support in comparing policies, get in touch with the team here at Money Expert to find a quote that works for you.