There is often a perception that insurance won't pay out, but with protection insurance the truth could not be more different.
New figures from the Association of British Insurers (ABI) have revealed that just 97% of all protection insurance claims in 2013 were paid out.
Protection insurance covers things like critical illness, life insurance and income protection. And while there has long been the perception that insurers will do what they can to avoid paying out among members of the general public, that perception appears to be wrong.
According to the ABI, more than £3 billion was paid out across the year on policies that are there to provide a helping hand in the event of death, serious illness or injury.
Here’s how the different forms of protection insurance performed over the year.
|
Type of insurance |
Number of claims received |
Percentage paid |
Percentage declined |
|
Whole of life (life insurance) |
43,529 |
99.9% |
0.1% |
|
Term assurance (life insurance) |
25,845 |
98.4% |
1.6% |
|
Critical illness |
16,496 |
91.8% |
8.2% |
|
Terminal illness |
2,675 |
91.5% |
8.5% |
|
Individual income protection |
13,170 |
91.1% |
8.9% |
|
Total permanent disability |
669 |
62.2% |
37.8% |
|
Total claims |
102,384 |
97% |
3% |
As you can see the two different versions of life insurance have remarkably high pay out percentages, though everything bar total permanent disability pays out at least 90% of the time.
And there’s even good news on that front, according to the ABI. It introduced a standard definition of exactly what counts as total permanent disability in 2011 – before that there was no clarity on what qualified, which is why so many claims were made that were then declined. Since its introduction payout rates have jumped, and the ABI expects this to continue.
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Why claims are turned down
There is one big reason for claims being turned down: non-disclosure.
[SPOTLIGHT]This is where someone buying insurance doesn’t tell the insurer at the outset about something that would influence whether the insurer would want to offer a policy, or the price of that policy. This may be something like a pre-existing condition or treatment that you’ve received in the past.
The number of claims declined because of non-disclosure has fallen in recent years thanks to the Code of Practice introduced by the ABI, which sets out how insurers need to handle claims were important information wasn’t supplied when the policy was taken out.
This was followed last year by the Consumer Insurance Act, which puts the onus on insurers to ask the right questions when you apply for the policy, so they won’t be able to cite non-disclosure quite so easily.
However, claims will still be turned down when the policyholder is found to have “deliberately, recklessly or carelessly” given false or incomplete information.
In essence, so long as you take your time to ensure you answer all questions as comprehensively as possible, you shouldn’t come a cropper of non-disclosure.
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Do I need protection?
Life insurance is pretty much essential for those of us with financial dependents. If anyone would lose out financially as a result of your death, then you really should have some form of life cover.
For more, read How to get the best life insurance policy.
Income protection, critical illness and total permanent disability cover comes down to personal choice. Critical illness, as the name suggests, is insurance that pays out should you be diagnosed with a serious illness. Total permanent disability cover comes as part of many critical illness policies.
Income protection (not to be confused with the shady payment protection insurance) pays out a monthly income while you are unable to work due to injury or illness, or if you suffer a reduction in salary for a prolonged period.
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