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Life insurance – could your policy fail to pay out as expected?
Life insurance is a type of protection that can help to protect against the financial impact of your death for your loved ones.
Latest figures supplied by the Association of British Insurers (ABI), reveal that 98% of life insurance claims were paid out in 2012 to over 28,000 families, and worth an average £49,000.
However a small percentage of claims weren’t successful.
Here are some circumstances where your insurance might not pay out:
If you’ve lied
The number one reason for a life insurance policy not paying out is because of fraud or non-disclosure.
An example of this might be if you develop an illness and don’t tell your insurer or you don’t declare a diagnosed illness on your application; then the claim can be rejected.
Complete honesty about your health and lifestyle is essential in order to avoid this happening.
If you take your own life
Many life insurance policies won’t pay out if the person insured commits suicide within the first 12 months of taking out the plan. However the majority will after this initial period has expired.
Insurers feel that they need to protect themselves against people obtaining large policies, and then taking their lives to get their family out of financial difficulties.
Arguably this depressing scheme is still achievable after a year on most policies, but LV= has said that in some cases suicide claims are turned down because there has been non-disclosure about the mental health of the person with the policy.
Living longer than expected
A fixed term policy insures by age. If you end up outliving the policy, you will not receive anything upon your death.
If you’re 30 years old and take out a 40-year policy, you are only covered should you die before the age of 70. A year later and your family will not receive a pay-out.
Many fixed term plans are required to end before your 70th birthday (level life insurance and decreasing life insurance), but whole of life insurance will cover you until you die.
Insurers consider terminal illness as a rapidly progressing sickness where your life expectancy is deemed to be no greater than 12 months and has no known cure.
In most cases of terminal illness you can get your life insurance policy paid out early with a percentage reduction on the lump sum (as the term will not be completed).
Sadly if you have a terminal illness within 12 months of the end of your plan the insurer will only pay out after the event of death.
If you live and travel outside certain areas
Some life insurance policies may be void if you live or travel outside certain areas for a long time.
Examples of these areas include EU, USA, Canada, Australia, New Zealand, the Isle of Man or the Channel Islands for more than 12 consecutive months.
Changes to lifestyle
It’s tempting to think that once you’ve bought life insurance you won’t have to think about it again. It is, however, essential that you update your life insurance policy as changes take place in your life.
Examples of changes that will affect your policy are getting married, having children, buying a house, a new job (changes to income), moving to a bigger house (changes to mortgage). All of these could affect your level of cover and you will need to review the sum assured or change the policy entirely.
If you don’t update the terms of your policy the result could be that you are under-insured and your family will potentially get a pay-out that is unlikely to cover what you wanted it to.
What to do if a claim is rejected
Reassuringly latest figures from the industry suggest, on the whole, life insurance confirm claims are rarely rejected.
In the event that your claim is rejected, you don’t have to settle for the decision if you think it’s unfair.
Complaining to the company is the initial step in the dispute process.
If the outcome of your complaint isn’t what you hoped for then you can proceed to the Financial Ombudsman Service (FOS).
The FOS is an independent body that will look into the claim and decide which party is in the right.
If the Ombudsman decides your claim was wrongly rejected it can overturn the companies decision and make them pay compensation or take steps to change the outcome.
Post courtesy of Love Money.