It’s not uncommon to worry about whether your insurance policy will or won’t pay out. Especially when it concerns the financial stability of your loved ones – which in the case of life insurance, it does.
The good news is: insurers pay out the vast majority of life insurance claims. This is because it’s fairly black and white when it comes to claiming on a life insurance policy – you either die while you’re insured, or you don’t.
However, the validity of your policy does rely on you being honest when you apply, and on keeping up with your payments for as long as you hold the policy. And there are, as with any insurance policy, some exclusions to be aware of. Let us explain.
When does life insurance pay out?
To put it simply, life insurance pays out if:
- You die while you're insured
- You're diagnosed with a terminal illness (only if your policy has terminal illness benefit)
- You were honest about your health and lifestyle when you applied
All life insurance applications go through an underwriting process, during which the insurer will ask about you to provide health and lifestyle information. This is so they can assess how much of a risk you are to insure – or, in other words, how likely it is that you'll die during the policy term and claim on the policy. The info you'll be asked for includes your:
- Personal health history
- Family health history
- Height and weight (BMI)
- Smoking status
- Alcohol consumption
- Job and hobbies
- International travel
It’s really important to be accurate and honest when answering these questions. If you’re not, you risk invalidating your policy and it not paying out when you need it to. Your insurer could refuse the claim on the grounds of ‘misrepresentation’ (even if you’ve kept up with your premiums).
When doesn’t life insurance pay out?
There are some scenarios in which life insurance won't pay out – but only a very small minority of claims are declined (typically between 1 and 5%). Being honest about your health and lifestyle when you apply is key to your family making a valid claim if you die, though inaccuracy during the application is not the only reason life insurance might not pay out. Here are some other possible scenarios:
- You're not insured when you die
If you buy a term life policy, you’re only insured for a specified amount of time, agreed when you take out the policy – after which, your policy ends. The policy will only pay out if you die during your policy term. So, for example, if you buy 20 years’ of life cover, but die in 21 years’ time, you’ll no longer be insured – so your family wouldn't be able to claim. Alternative types of life insurance are also available.
- You don’t pay your premiums
If you miss paying your monthly insurance premiums, your life insurance policy is likely to be cancelled by the insurer. Some policies come with a ‘reinstatement’ benefit, which means you can reinstate your policy if you miss a payment (without having to apply and go through medical underwriting again) – but only if you do so within a set period of time. Keeping up with your payments is the best way to make sure your family could claim on your life insurance policy if and when they need to.
- You cancel your policy
Once you cancel your life insurance policy, or your policy is cancelled by the insurer due to missed payments, you’ll no longer be insured. If this happens, the policy has ended so a claim couldn't be made if you die. Our guide to cancelling life insurance will help if you're considering this.
- You meet an exclusion
Life insurance policies can come with exclusions that apply to anyone who takes out the policy, and potentially exclusions that the insurer adds specific to you and your situation (based on your health history and/or lifestyle). It’s important to be fully aware of what these are before you buy the policy, so you’re clear about when your family would and wouldn’t be able to claim for your death. Most life insurance policies come with a suicide exclusion, for example – which means the policy won’t pay out if you die by completing suicide within the first 12 months of taking out the policy.
- Most life insurance claims are paid out
- A successful claim relies on you being honest about your health and lifestyle when you apply (not doing so is called ‘misrepresentation’)
- Life insurance won’t pay out if you die after cancelling your policy
- Life insurance won’t pay out if you’ve missed monthly payments (and the insurer has cancelled your policy)
- Life insurance might not pay out if you meet an exclusion (e.g. death by suicide in the first year of being insured)