Do insurers pay out? Myths vs Facts

Reader's Digest Editors

Is life insurance worth it?

We believe life insurance is essential, especially if you have loved ones who are financially dependent on you.

A life insurance pay out could protect the family home (clearing the mortgage) if the worst were to ever happen to you or your partner.

What’s more, life insurance can be adapted to suit your individual circumstances, matching your budget, age, number of dependents and the length of cover you require.

The key financial benefits:

  • Pay off the mortgage – (£121,687 – average UK mortgage debt [1])
  • Cover future living expenses (partner and/or children)
  • Provide an inheritance (children and/or grandchildren)
  • Cover funeral costs – (£4,078 average cost of a funeral in UK [2])
  • Clear outstanding debts (car finance, personal loans, credit cards).

Generally, the best time to take out life cover is when you are still young and healthy and can lock in very low premiums. However, often life cover is only seriously considered in later life or after a major life event, (like a house purchase, family death or the birth of a child).

Research published by LifeSearch suggests 26% would spend up to £25 a month on takeaway food and 25% would spend up to £10 on takeaway coffee [3]. However, did you know you could secure life insurance cover for less than 20p a day?

Despite this, 57% of the UK population do not have any life insurance cover in place and 11% do not know whether they have cover or not!

Why is this? Perhaps people:

  • Do not think they need life insurance
  • Plan on taking out cover at some point in the future
  • Do not think they can afford cover
  • Think they are covered through their employer.

Research suggests one influential factor is simply misconceptions amongst the public surrounding life insurance.

A range of sources, including Association of British Insurers (ABI), a report from Pacific Life Re, as well as insurers such as Legal & General, AIG, Zurich and SunLife indicate there is a significant gap between customer perception and the reality when it comes to paying out on life claims.

If you are unsure of whether a life insurance will pay out or not, why would you take out a policy and pay your monthly premiums?

Insurers pay out 98% of life insurance claims

Although more than 80% of people surveyed think pay out rates are less than 80% [4], according to official figures from ABI the actual figure is 98% [5].

In a 2017 report from Pacific Life Re [1] when customers were asked why they think insurers decline claims, 58% answered ‘due to the policyholder not providing accurate information when they bought the policy’.

While 17% replied, ‘insurance companies always try to avoid paying out.’ A further 9% cited ‘loopholes’ or ‘insurance companies being too profit driven in general’ as key reasons.

Of the 2% of declined claims, the main reason given was non-disclosure. Meaning the policyholder was not 100% accurate with their details on the application.

So, there appears to be an element of distrust, possibly unwarranted, among some regarding insurance providers and their willingness to pay out on claims.

£263 billion cover gap in the UK

Did you know that 1 in 4 UK breadwinners [4] and almost half of parents [6] do not have any life insurance cover in place.

These figures mean an estimated cover gap of an eye-watering £263 billion [4].

In summary, many in the UK do not have life cover in place, potentially leaving their loved ones exposed. Do you have the protection you need?

Know the facts

It is clear that many in the UK are unsure of the cost of life insurance or whether it even pays out.

These common misconceptions could play a part in why ‘8.5 million people are without’ any form of life cover [5].

Many are also confused on the cost of life insurance. Insurance provider SunLife suggests ‘that 47% of people have no idea how much life insurance costs’. While ‘people overestimate the cost of insurance by 394%’[7].

Seize the day (be a hero)

Taking out life insurance to safeguard the financial future of your loved ones is a heroic and selfless act.

A great way to secure the right policy, at the best price, is to compare multiple quotes yourself. Alternatively, use a reputable broker to do this on your behalf.

Now that we have dispelled some of the myths surrounding life insurance, why not cease the day and secure cover?

Then get on with the fun things in life, like enjoying your family and friends, safe in the knowledge your loved ones have a reassuring safety net in place.


Sources:

[1] The Money Charity – hhtp://themoneycharity.org.uk/money-statistics/51592/

[2] Money Advice Service – www.moneyadviceservice.org.uk/en/articles/how-much-does-a-funeral-cost

[3] LifeSearch ‘Health, Wealth & Happiness 2017 Report’ – www.lifesearch.co.uk/health-wealth-happiness-2017

[4] Pacific Life Re ‘The Moment of Truth: A Consumer’s Perspective’ – www.pacificlifere.com/content/dam/paclife_corp/pre/public/publications/pacific_momentoftruth_8pp_LOW.pdf

[5] Association of British Insurers (ABI) – https://www.abi.org.uk 

[6] Legal & General – www.legalandgeneral.com/life-cover/confused-about-life-cover/articles-and-guides/protection-life-insurance-poll.html

[7] SunLife – www.sunlife.co.uk/press-office/public-overestimate-price-of-life-insurance-by-almost-400