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, there are situations in which insurers refuse to pay out on a policy after the death of the insured person. Most life insurance claims in the UK are paid, but it is worth being aware of the situations in which your insurer may refuse to pay out – in this article we explain what you can do to reduce this risk.

How does life insurance work in the UK?

The purpose of a life insurance policy is to provide financial support 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 out 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, 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.

However, there are situations in which an insurance company will refuse to make a payment or reduce the amount paid out.

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

One of the most common reasons for an insurer refusing or reducing a payout is that information given when the policy was taken out – for example about medical conditions – was inaccurate or incomplete. Concealing information about past or ongoing illnesses, addictions, lifestyle or occupation may result in an incorrect risk assessment on the part of the insurer. The insurer may then use this as a reason to refuse or reduce a payout.

Information that is commonly left out or misstated includes:

• 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 why insurance premiums for smokers are significantly higher. People whose work involves particular risks, such as working at heights or deep-sea diving, may also pay higher premiums.

• Family medical history – insurers may ask about conditions affecting close relatives, so answer these questions as fully as you can.

If the information you gave was inaccurate, the insurer’s options depend on whether the misrepresentation was deliberate or reckless, or careless: it may refuse the claim, refund the premiums you have paid, or pay a proportionately reduced amount. An inaccuracy that would not have changed the insurer’s decision or terms should not, on its own, affect the claim. If you disagree with the insurer’s decision, you can complain – see the section on complaints below.

An example of inaccurate or incomplete information about smoking:

The rules are set out in Schedule 1 to the Consumer Insurance (Disclosure and Representations) Act 2012. Imagine a customer stated when applying that they did not smoke, when in fact they smoked every day:

• If the misrepresentation was deliberate or reckless, the insurer can treat the policy as if it never existed, refuse all claims and does not have to return the premiums.
• If it was careless, the remedy depends on what the insurer would have done had it known the truth. For example, if it would have charged a higher premium, it can reduce the payout proportionately – paying the same proportion of the claim as the premium charged bears to the premium it would have charged.

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. What matters is the information you give when you apply – and again if you later ask to change the policy, for example to increase your cover. Whatever type of policy you have, including whole-of-life insurance, check your policy terms to see whether you need to tell the insurer about any changes. If the contract has such a provision and some information is concealed, the insurance company may question the payout.

Death by suicide

Most insurance policies in the UK have a so-called suicide exclusion period, i.e. a period during which no payout would be made in the event of death by suicide (often the first 12 months, sometimes longer – check your policy). This 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 have depression or another mental health condition when you take out the policy, the insurer may – depending on how severe it is – add an exclusion for suicide or self-harm, or charge a higher premium. Any exclusions will be set out in your policy documents.

Exclusions in your policy

Some policies contain exclusions for particular circumstances or activities – for example, death while taking part in certain hazardous activities, or other specified circumstances. Any exclusions are listed in your policy documents, so check your own policy terms.

Unpaid premiums

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

• If you miss a premium payment, insurers usually give you a period after the due date in which you can still pay before your cover ends.

• How long this period lasts varies between insurers – for example, one major UK insurer cancels the policy if a premium is still unpaid 60 days after it was due – so check your policy terms.

• If the premium is still unpaid after this period, the policy may be cancelled and the premiums paid so far will not be refunded.

If you are struggling to pay your premiums, contact your insurer as early as possible to discuss your options before your cover ends.

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 should tell the beneficiaries and explain the reasons for its decision.

Any beneficiary who is denied payment of benefits has the right to file a complaint. To do so, contact the insurer (putting your complaint in writing helps keep a record), explain why you believe its decision is wrong and include any documents that support your case (e.g. medical reports or evidence about the circumstances of the death). The insurer then has 8 weeks from receiving your complaint to send you a final response, or to explain why it needs more time.

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. You normally have six months from the date of the insurer’s final response to refer your complaint to the Financial Ombudsman Service. Lodging such a complaint is completely free of charge, and the FOS will review the entire case and issue a ruling. If you accept the ombudsman’s final decision, it is binding on the insurer; if you reject it, you may still be able to take legal action.

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 higher premium 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 refer your complaint to the Financial Ombudsman Service free of charge.