03/08/20Financial protection myth: Policies don’t pay out
Financial protection can provide you and your loved ones with security. However, there are myths that stop people from choosing a product that may be right for them. One of these is that financial protection policies do not pay out and insurers will find any reason not to honour a claim you have made. If this is something you have heard, you are not the only one but it is a myth that can be damaging.
The truth is financial protection products overwhelmingly pay out when a claim is made.
In 2019 alone the insurance industry paid out more than £5.7 billion to policyholders that made a claim, figures from the Association of British Insurers (ABI) show. This equates to 98.3% of all claims made. There are, of course, times when policies do not pay out. However, the myth that they rarely do could not be further from the truth.
Looking at individual types of policies, the data shows:
- 6% of Critical Illness claims were upheld with the average value of claims being £67,573
- 4% of Term Life Insurance claims were upheld with the average value of claims being £77,535
- 99% of Whole of Life Insurance claims were upheld, the average value of claims was £3,464
- 2% of Income Protection claims were upheld, with the average value of claims being £17,728
The gap between myth and reality
Despite the figures clearly showing more than nine in ten claims across all types of financial protection products are upheld, the myth that they do not pay out still prevails. Previous research from insurer Aviva found just 47% of respondents think an insurer would pay out. What is more, 86% of people think insurers will always try and avoid paying out.
Combined with the figures showing how often insurers do pay out, the survey highlights a significant gap between reality and myth.
If you believe you or your family could benefit from taking out some form of financial protection, there are some things you can do to give you confidence in the product you are choosing:
- Fully understand what the policy will cover. One of the most common reasons that a claim is not upheld is because the policy did not cover what the policyholder was expecting. For instance, a Critical Illness policy will pay out on the diagnosis of defined illnesses within the policy, not every illness. Understanding when a policy will and will not pay out can help you choose the right type of cover for your priorities.
- Be honest when taking out a policy. Make sure you declare all existing health concerns and answer lifestyle questions, such as smoking habits, honestly when taking out any form of insurance. Not doing so can invalidate your claim, meaning you or your family would not receive a payout.
- If you are still worried that an insurer would not pay out, check their individual records. Insurers publish their own figures, showing how much has been paid out. Checking the provider you intend to take out a policy with can help to make you feel more confident with the policy you have chosen.
Choosing the right type of protection for you
Now the myth of insurers not paying out is busted, should you look to take out a financial protection product? It will depend on your circumstances and priorities. Understanding the different types of policies you can choose from can help you see where they may add value.
Income Protection: This would pay out a regular amount, typically a portion of your usual salary, if you are unable to work due to an accident or illness. It will continue to pay out until you are able to return to work, retire or the policy term comes to an end. It is a financial protection product that can provide peace of mind that you would still be financially secure even if you are unable to work for a period of time.
Critical Illness Cover: This type of policy pays out a lump sum on the diagnosis of certain critical illnesses that are specified within the policy. It is a sum that can allow you time to come to terms with what has happened, take time off work or adapt your home if needed.
Term Life Insurance: Life Insurance would pay out a lump sum to loved ones on your death. It is a policy that can ensure your family are financially secure if you were to pass away. You can choose the amount to be paid depending on your circumstances, for example, how much remains on the mortgage. A Term Life Insurance policy provides insurance for a set period of time that you can choose, for instance, until children reach adulthood.
Whole Life Insurance: Much like Term Life Insurance, a Whole Life policy would pay out a lump sum on your death to loved ones. However, Whole Life coverage lasts throughout your lifetime.
If you would like to discuss your financial protection needs and how a policy could fit into your wider plans, please get in touch. We are here to help you understand where a policy could provide additional security and peace of mind.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.