What does life insurance cover?

7 min Read Published: 10 Nov 2021

What type of death is covered on life insuranceIn this article we explain how life insurance works, what is and isn't covered and how to ensure that your life insurance policy pays out.

How does life insurance work?

Life insurance is an insurance policy that is designed to pay out a cash lump sum if you die within the policy term. Once you have chosen the amount of cover you need and the period of time you want to be insured for you will be provided with a quote.

If you are happy to proceed you will need to complete an application form and the insurance company will then assess the risk you pose for a claim based on the answers you give. An insurance company may need to write to your doctor to confirm details and dates fo your medical history and they will handle the administration and costs of doing so.

Your application will then go through an underwriting process and depending on the medical information provided, you will either be offered standard rates (the same premium as the initial quote), special rates (an increase to the premium), a postponement (cover declined for a defined period of time) or a decline (the insurance company will not accept your application).

What types of death are covered by life insurance?

Most life insurance policies will cover death in any event offering policyholders peace of mind that their financial affairs can be taken care of if the worst were to happen. Rejected life insurance claims are rare and are usually a result of non-disclosure or misrepresentation during the application process rather than not meeting the claim definition. It is extremely important therefore that you are completely honest when completing life insurance application forms and if you are unsure, ask that they write to your doctor for clarification. Contrary to what most people believe, it is better to say you don't know something that you don't know rather than to guess the answer to a question you're not sure about as the onus then falls on the insurance company to clarify the information by other means such as writing to your doctor.

Does life insurance cover suicide?

Most life insurance companies have a suicide clause in their life insurance contracts. What this usually means is that they will cover suicide, but will not pay a claim in the first 12 months of the policy term. Always check the terms and conditions (sometimes referred to as a 'key features' or 'key facts' document) as clauses can vary and some older policies do not cover suicide at all.

Does life insurance cover death from disease?

Yes. A life insurance policy will pay out if death is as a result of a disease. The only time that a life insurance policy would not pay out is if the applicant already had the disease or symptoms that were linked to the disease before taking out the cover and did not mention it on the application forms. This would be treated as non-disclosure and would normally result in a rejected claim.

Does life insurance payout if you die from cancer?

Yes. In fact, if the cancer is defined as 'terminal' (confirmation that the applicant is likely to die within 12 months) then an insurance company would usually pay the insurance claim upon diagnosis and wouldn't wait for the applicant to die. The only reason that a life insurance company would reject a claim as a result of death from cancer would be due to non-disclosure.

Does life insurance pay out for terminal illness?

Yes, almost all life insurance policies provided by reputable insurance companies will include a terminal illness benefit. Terminal illness cover allows the policyholder to make, what could be described as an early death claim if a medical consultant deems that their life expectancy is less than 12 months to live or in some cases, have been diagnosed with a specific terminal illness such as late-stage cancer. The life insurance pays the same level of cover as if you were making a death claim and then there would be no further claim when death actually happens. Life expectancy isn't always predictable and if the person ends up living longer than the expected 12 months, the insurance company does not expect the money to be returned.

This type of benefit within a life insurance policy can be extremely useful in preventing financial hardship in the final period of a person's life which is often an emotionally challenging time for the person and those in their life.

Does life insurance cover accidental death?

Yes. Applicants are required to complete an application prior to being accepted, which includes questions about the applicant's job and lifestyle, as well as any sports or hobbies that they take part in. This enables the underwriters to assess any additional risk at the time of the application. So long as the applicant has been honest at the time of the application, the insurance company will pay out any claim as a result of accidental death.

Did you know: Most life insurance companies offer free 'Accidental death benefit' while your application is being underwritten. This means that if you die as a result of an accident during the application process, the policy will pay out, even though the policy hasn't started and you haven't paid any premiums. Make sure you check the terms and conditions as it is not offered by all insurers.

What isn’t covered on a life insurance policy?

Life insurance in the UK is fairly black and white; if you die within the policy term, the policy will pay out (irrespective of how you die). However, a life insurance policy will not pay out if:

  • you were dishonest on the application form or deliberately withheld information
  • you committed suicide within the first 12 months of the policy term (longer with some insurers)

Does life insurance cover funeral costs?

There are specific policies that are used to cover funeral expenses and these are sometimes referred to as 'Over 50's Life Insurance' cover. These types of life insurance will pay a fixed lump sum and are guaranteed to pay out upon death and the money is usually used by the beneficiaries to pay for the cost of the funeral. The proceeds from other life insurance policies, such as term life cover or mortgage life insurance can be used however the named beneficiaries or executors of the deceased person's estate would decide this. A term life insurance policy would usually provide enough to pay off debts and leave enough to cover expenses such as funeral costs. A mortgage life insurance policy should ideally be used for the purpose of paying off a mortgage, although this is not a legal requirement. Any remaining money can be used however the beneficiaries or executors of the estate decide and that includes using the money to cover funeral costs.

One thing to bear in mind however is the time that it takes for a life insurance policy to pay out, as it can sometimes take many weeks to finalise the details and receive the payment from the insurer. One way to speed up the payment of a life insurance policy is to place the policy into trust, something that can be done by a specialist insurance broker* for free. We go into more detail about placing a life insurance policy into trust below.

Who gets your life insurance payout if you die?

If you die and the policy covered your life only, the proceeds of your life insurance policy will be paid to your dependents as per the instructions on your will, or, if you have completed a trust form, the money will be paid through the trust and trustees to your nominated beneficiaries without the need to go through probate and with no inheritance tax payable. If you do not have a will and the policy was not written into trust, then the payment is likely to follow the rules of intestacy. You can read more in our article, "Who can inherit if there is no will – the rules of intestacy explained"

However, if you die and you have a joint life insurance policy, the payout usually will be made the surviving person on the policy unless there is a trust that indicates otherwise.

How to make sure your life insurance policy will pay out

Below we have provided a couple of quick tips on how to make sure your life insurance policy will pay out, as well as how to speed up the payment process of a claim and how to ensure your dependents receive the money without having to pay any inheritance tax.

  1. Be honest when completing the application forms. If you fail to tell an insurance company about any ill-health or medical condition you may have suffered it will be treated as non-disclosure and could result in a claim being rejected. You may have to pay a little more to get the cover that you want, but it is a price worth paying to know that the policy will guarantee to pay out.
  2. If you are unsure, ask the insurance company to write to your doctor. Never take a chance when it comes to insuring your life. If you are unsure of the medication you were on or the dates that you were diagnosed with an illness you should simply request that the insurance company writes to your doctor for clarification. The insurance company will cover the cost (and you will be insured under their 'accidental death benefit' while they wait for your doctor to reply).
  3. Place your policy in trust. A trust form is a document you can complete, usually for no extra cost, to ensure that the proceeds of a life insurance policy are paid directly to the named beneficiaries. A trust ensures that the proceeds remain outside of the deceased person's estate and avoids the need for probate and inheritance tax. Inheritance tax is currently charged at 40% over the tax-free threshold of £325,000.
  4. Speak to an independent specialist. Not only will an independent specialist help you to find the cheapest life insurance quotes, they can help you complete the application forms, liaise with the insurance company on your behalf and crucially, they can help to place your policy into trust. We have personally vetted the services of a specialist insurance broker* that will be able to do all of the above for you. To speak to an adviser, with no obligation to take things further, just fill in the form via the above link. If you do decide to take out a suitable life insurance policy you will also qualify for up to £100 cashback.



If a link has an * beside it this means that it is an affiliated link. If you go via the link, Money to the Masses may receive a small fee which helps keep Money to the Masses free to use. The following link can be used if you do not wish to help Money to the Masses and do not wish to qualify for the cashback referred to in the article - LifeSearch