When will an insurer not pay out on your life insurance policy in the UK?

Although life insurance in the UK is regulated by the Financial Conduct Authority, which provides a very high level of consumer protection, there are situations in which insurers refuse to pay out on a policy after the death of the insured person. It is worth being aware of the situations in which your insurer may refuse to pay your family the money – although these situations are relatively few, in this article we will advise you on what to do to minimise this risk to almost zero.

How does life insurance work in the UK?

The purpose of a life insurance policy is to guarantee financial security for the insured person’s loved ones in the event of their death. According to the contract, it is this event that obliges the insurer to pay benefits to the persons designated in the relevant document.

There are many different types of life insurance policies, but they all have one fundamental purpose – to pay money to beneficiaries. However, as you might guess, many people decide to purchase a policy in order to protect their loved ones from the consequences of their death. It is not uncommon for insurance to also serve as a tool for estate planning.

Although no insurer may construct its contracts in a manner that artificially limits the beneficiaries’ right to receive money, there are situations in which an insurance company will refuse to make a payment or will reduce the value of the benefit.

Main reasons for refusal of life insurance payouts in the UK

Below, we present the most common situations in which an insurer may refuse to pay benefits. Please note that these are not all the possibilities – it is always worth reading your contract carefully, as it is the only place where you can find out exactly what conditions must be met.

Untrue information provided when purchasing the policy

By far the most common reason for limiting or refusing to pay out on a policy is misrepresentation at the time of taking out the policy.** Concealing information about past or ongoing illnesses, addictions, lifestyle or occupation may result in an incorrect risk assessment on the part of the insurer**. This will, of course, also be used as an argument for refusing to pay out.

The information available to us indicates that lies most often concern:

• Health status – illnesses and current weight (which translates into BMI) are concealed. Sometimes, life insurance policies are purchased by people who have recently been diagnosed with cancer, but similar decisions are also made by people with other medical histories that would essentially prevent them from taking out a policy.

• **Lifestyle **– from the insurer’s perspective, risk factors include addictions. This is whyinsurance premiums for smokers are significantly higher. People in high-risk occupations, such as construction workers or those employed in the offshore sector, also have to take into account higher insurance costs;

• **Family medical history **– concealing hereditary diseases is fairly easy to detect, but some people decide to do so anyway.

If any of the information you provided turns out to be false, the insurer may refuse to pay out the policy or, for example, limit itself to refunding the premiums you have paid.** In reality, each case of this type is considered individually – falsification of information may be discovered but may not affect the decision to pay out the benefit**. Of course, you can also appeal against the insurer’s decision, although the law is often on the side of the company.

Let us now illustrate a typical case of withholding medical information:

The customer declared that he did not smoke, but in fact he smoked every day. If he died as a result of a car accident and the number of cigarettes was negligible, the insurer would not be able to question the payment. However, if the death was the result of lung cancer, the chance of obtaining a benefit payment would be very small, and if it did occur, the amount would be significantly reduced (because the outstanding smoking surcharges would be deducted).

What happens if your lifestyle or health changes during the term of the policy?

The answer to this question is not clear-cut and usually depends on the type of policy and the individual terms and conditions of the contract.** If it concerns a term policy, i.e. insurance for a specified period, it is usually not necessary to notify the insurer of any changes**. Only the information provided when concluding the contract is important. It is very rare for a term life insurance contract to contain clauses requiring notification of changes in lifestyle or health. The situation is slightly different in the case of whole-of-life insurance. In this case, it is more common for the insurer to require notification of such changes. If the contract has such a provision and some information is concealed, the insurance company may question the payment of benefits.

Death by suicide

Most insurance policies in the UK have a so-called suicide exclusion period, i.e. a period during which no benefit would be paid in the event of death by suicide. This obviously refers to intentional suicide, i.e. a conscious act aimed at taking one’s own life. This condition protects insurance companies from abuse, for example, situations where someone first takes out a policy and then decides to take their own life with the intention that the beneficiaries will receive the benefit payment. After this period, policies usually begin to cover death by suicide and pay out the benefits.

If you are suffering from depression at the time of taking out the insurance policy, your policy may exclude payment in the event of suicide.

Death while committing criminal acts

Virtually every contract contains a clause stating that** no benefits will be paid if death occurs while committing unlawful acts**. Even if it is an accident, if it occurs while committing a crime, the insurer is likely to dispute the payment.

For example, if the insured person dies in an accident but it turns out that they were under the influence of alcohol, the insurer will have the right to refuse to pay the benefit, due to the fact that the death was the result of consciously endangering their life in an illegal manner. Another example is death as a result of being shot by the police during a chase.

Non-payment of contributions

Another reason for refusing to pay benefits may be unpaid premiums. If the insured person stops paying them, the policy may be suspended and ultimately cancelled altogether. This usually happens as follows:

• When the first premium is not paid, the insurer will most likely start a grace period. This is usually 30 days, during which you can settle the payment without losing your cover.

• If the premium is not paid after the grace period ends, the policy is suspended. This means that the customer is no longer insured until all outstanding liabilities are settled.

• How long the policy can remain suspended depends on the insurer’s individual policy - some give a few weeks, others up to several months. After this time,** the policy may be cancelled and the premiums paid so far will not be refunded.**

It is good to know that if a customer is experiencing financial difficulties and is unable to pay their premiums, many insurance companies are willing to resolve the issue. This is where the Automatic Premium Loan, i.e. a loan from the value of the policy, comes in. The mechanism is quite simple – the value of the benefit is reduced by a certain amount, which is used to repay the liabilities. In some situations, such an arrangement is really very beneficial, because despite the lower amount of the benefit for the beneficiaries, it allows them to maintain their cover.

The insurer refuses to pay the benefit – what should you do?

When a claim is made, the insurer will review the documents, paying attention to the cause and circumstances of death, the terms of the policy, and the insurance contract. If it finds that there are grounds for refusal (such as those described above), it will send a written refusal decision to the beneficiaries. Each such document will contain a justification and a reference to specific provisions in the contract.

Any beneficiary who is denied payment of benefits has the right to file a complaint. To do so, they must write a letter explaining why they believe the insurer’s decision is wrong and attach any documents supporting their arguments (e.g. medical reports or documents confirming the deceased’s lack of fault). Such documentation should be submitted directly to the insurance company, which is obliged to consider it within 8 weeks of receipt.

If the insurer’s response is unsatisfactory or if they fail to respond within 8 weeks, you can lodge a complaint with the Financial Ombudsman Service (FOS), an independent institution that resolves disputes between consumers and financial companies in the UK. Lodging such a complaint is completely free of charge, and the FOS will review the entire case and issue a ruling. The decision of this body is legally binding on the insurance company, but not on the consumer - if the consumer is still convinced that they are right, they can take legal action against the insurer.

Summary

When it comes to life insurance, it is very important to know the terms and conditions of your policy. Even unintentional non-compliance with them may result in a refusal to pay benefits. The most important thing is to be honest with your insurer when taking out a policy – it is better to pay a few pounds more per month than to expose your family to the loss of benefits due to withholding information, e.g. about an illness. All that remains is to comply with the terms and conditions of the contract and pay your premiums regularly. Remember that if your insurer refuses to pay out, all is not lost – you can appeal against their decision completely free of charge using the services of the FOS.