In this article, we explain the most common reasons for a declined life insurance claim, to help you buy life insurance that will pay out when it is needed. We provide tips to minimise the chance of a declined life insurance claim so your family does not suffer if they are faced with a life insurance claim rejection.
What is life insurance?
Life insurance is insurance that covers death by paying a lump sum of money or a regular income if you die whilst insured. Life insurance gives people peace of mind that if they were to die and the money from a life insurance policy could provide financial protection and lessen the financial burden for those they leave behind helping to fund living costs and pay off debts. A life insurance payout can also be used to pay for funeral expenses and death taxes such as inheritance tax.
What does life insurance cover?
Life insurance covers the death of the person who is insured if they should die or become terminally ill. There are different types of life insurance available to buy and each type of policy will detail different terms and conditions for when a successful claim can be made.
You'll find more information in our article, "Types of life insurance explained".
Life insurance doesn't pay out in certain circumstances and although these circumstances are few and rare, it is worth understanding them to avoid a death claim rejection.
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6 reasons why life insurance may not pay out
Life insurance pays out around 97% of the time. There are, however, a few reasons life insurance won't pay out 100% of claims and we have listed these below:
1. Non-disclosure of facts when you apply for life insurance
Non-disclosure is a common reason life insurance may be declined. It is the industry terminology used to describe occasions when the insured person has failed to share information accurately and honestly with the insurance company when they applied for life insurance. Non-disclosure can include omissions or misrepresentations about your medical history, occupation and lifestyle.
Innocent vs malicious non-disclosure
Sometimes, there is a distinction made between innocent non-disclosure and malicious non-disclosure to allow for genuine and sincere mistakes that customers may make when applying for life insurance. Life insurance will not pay out if it is found that you have not disclosed information that you were asked about, to the best of your knowledge. If found to be innocent, the insurance company may still pay a life insurance claim but in cases where the omission or misrepresentation is believed to be malicious, life insurance claims are mostly declined.
Non-disclosure can be when a person who applies for life insurance does not disclose information about their health even when the insurance company has asked about this and the insurer believes the applicant reasonably knew the information. It can also be omissions about the insured person's lifestyle such as smoking habits, drug-taking or taking part in dangerous activities.
The key thing to understand is that you are only required to tell life insurance companies what is asked of you during the application process.
How to avoid life insurance claims being declined for non-disclosure
- Ensure that you understand the questions in your application fully and clearly
- Disclose all the facts about your health and lifestyle that you are asked
- If you are unsure about an answer make this clear - the insurer can ask your doctor
Tip: If you are unsure about the answer to a question, the insurance company can write to your doctor or ask for other information that will support your application.
2. Excluded cause of death
Within almost all insurance policies, a set of terms and conditions governs when the insurance will cover an event such as death and when it won't. Usually, insurers are quite clear about what is not covered within the terms of cover but it is a document that most people file away without reading it.
Life insurance terms and conditions often include exclusions which describe any circumstance that the insurer will not cover. Common exclusions that apply to life insurance include:
- death caused by self-harm or if you commit suicide in the first 1 to 2 years of a policy (often referred to as a suicide clause)
- death recorded outside of certain countries
- death caused by civil war or commotion
- death caused by drug overdose, misuse of drugs or alcohol.
- specific exclusions for health, occupational or lifestyle pursuits (usually applied due to your personal circumstances)
How to avoid life insurance claims being declined due to the terms and conditions of the policy
- Read all the terms and conditions before you buy your life insurance
- Ask questions about the terminology that you don't understand
- Don't assume that you won't be able to find better terms with another insurer
- Speak to a specialist life insurance adviser*to search for improved terms
Tip: Life insurance specialists do a lot of the work for you by understanding the fine print and can help you to understand this before you start your life cover. Most are knowledgeable about which specific exclusions can be avoided if you have certain health, occupational or lifestyle concerns. Risky jobs, hazardous pursuits or a health condition could push some insurance companies to be more cautious with the life cover they will provide than others.
3. Missed or unpaid life insurance payments
If you miss a payment to your life insurance company, it will usually continue your cover for a month and some may even continue it for up to 3 months. Once your missed payments exceed the number that is allowed, your life insurance policy will become lapsed and can no longer be claimed against. It can be possible for you to pay your missed premiums to reinstate your life cover. If you leave it too long the policy may become void and therefore cannot be reinstated, in this case, you would need to apply for life insurance again and start a brand new policy.
How to avoid life insurance claims being declined due to missed payments
- Ensure that your bank details are relayed correctly to the insurer correctly
- If you are in financial hardship, tell your insurer - payment holidays can sometimes be agreed
- If your monthly payments for life insurance are no longer affordable, speak to a life insurance specialist* to review your life insurance based on your budget
- If your life insurance has been arranged jointly with someone and your relationship no longer exists tell the insurance company, especially if the other party was responsible for the monthly payments
Tip: Choose a convenient date of the month for premiums to be collected and remember to update the insurance company if you change bank accounts.
4. Death after the term of a policy
Term life insurance covers the insured person for a specific number of years and a claim cannot be made once the insurance comes to an end. Choosing a short-term life insurance policy will usually be cheaper than one that covers your life over a longer period, but in saving money, you may find your life insurance cover ends while you still need it. Types of term life insurance policies include level term assurance, mortgage term life insurance, family income benefit and most sickness insurance policies such as critical illness cover or sick pay insurance.
How to choose the correct term for your life cover
- Longer policy terms can give peace of mind whilst allowing you to cancel early if you no longer need cover
- Term life cover will always have an end date so if you need your life insurance to cover you for the rest of your life, speak with a life insurance adviser* to select the right type of life insurance
- Choose the correct term for mortgage life insurance so that the cover runs for as long as your mortgage does - do not forget to amend this if you extend the term of your mortgage
5. Death during the qualifying or waiting period
Some life insurance policy types include a qualifying or waiting period before the life insurance is fully effective. This is where an insurance company will not pay the full death benefit within the first 12 or 24 months and some policies may have even longer qualifying periods of 36 months or more before a claim can be made. These types of policies usually don't ask the life insurance applicant about their health so the qualifying period is a mechanism to prevent people who are terminally ill from claiming a life insurance policy early. However, if death happens due to an accident, the policy will usually pay out within the qualifying period.
Some types of life insurance policies that can include qualifying or waiting periods are:
- Funeral plans
- Over 50s life insurance
- Whole of life insurance
6. Terminal illness claims
Most life insurance policies pay early death claims if the insured person is diagnosed with a terminal illness that is likely to result in death within 12 months. However, some older life insurance policies include a clause that prevents a terminal illness claim in the last 12 to 18 months of a policy. Newer life cover policies don't usually include such a clause.
How to avoid terminal illness claims being declined
- Ensure that you make a claim as soon as possible
- Consider reviewing an older life insurance policy that excludes claims in the last 12 - 18 months
How to ensure your life insurance policy will pay out
The best way to prevent any disappointment for your family or beneficiaries is to choose your life insurance wisely. Do not assume that all life insurance policies are alike - different types of life insurance policies suit different people with their unique needs and circumstances. You usually wouldn't buy a term life insurance policy to cover your funeral costs, for example, because the policy will likely run out before you die and won't meet your objective.
Although it may seem obvious, remember that you won't be around to challenge the insurer or resolve a declined claim. This will usually fall on members of your family. So, it is important that things are watertight before you file your documents away.
Mostly declined claims arise because the terms and conditions of the policy are not met or because the applicant hasn't answered the application questions accurately and honestly. The easiest way to avoid this is to enlist the help of a life insurance specialist who can navigate this on your behalf and won't charge you for doing so.
Other types of personal insurance such as income protection insurance could include standard exclusions such as incapacity that is caused by mental health conditions or musculoskeletal problems such as back pain regardless of whether you have ever suffered from these health issues. It is key that you shop around for the best terms and conditions as not all policies will include the same exclusions.
Buy a life insurance policy with confidence through a specialist
Life insurance specialists don't charge for their services because they're paid by the insurance company. Here is how they can support you to get the right life cover in place that will pay out when it is needed:
- Understand what you want your life insurance policy to do
- Make recommendations for the right types of life insurance
- Source the most competitive life insurance quotes
- Assist you to complete your life insurance application
- Support you to nominate your beneficiaries and avoid inheritance tax
The specialist life insurance advisers* that we link to in this article provide all of the above and we've personally vetted them. You don't have to buy the life insurance that they recommend to you but if you do, you can receive up to £100 cashback as a Money to the Masses reader.
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. This 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