Life insurance is a simple product, generally speaking: it pays out if you die.
Some policies will only cover you for a fixed period – these deals are known as term insurance – and if you live beyond this period, you will no longer be protected.
Whole-of-life policies, on the other hand, pay out no matter when you die.
But some providers may include exclusions which mean that the cover no longer applies in certain circumstances, or that you won’t be accepted for life insurance.
There are also other bits of small print that you should watch out for – so make sure you read and understand the policy documents in full when you receive them.
Some insurers may exclude people from cover in certain circumstances if they are deemed to present too great a risk.
Also, an insurer may list other situations in which it might not pay out, for example if the insured party was in some way culpable for their own death.
The following may be reasons for an insurer to turn an applicant down for cover:
- If you work in a job that is considered “high risk”: this could apply to certain construction or oil industry workers, as well as members of the armed forces.
- If you regularly engage in risky pastimes, such as parachuting, mountaineering or motor sports.
- If you have a history of serious health problems, such as high blood pressure, cancer or diabetes.
- If there are lifestyle issues that make you a greater risk to insure, such as if you are a heavy smoker or seriously overweight.
You should bear in mind that not all insurers approach these issues in the same way, and with a great deal of competition in the industry at the moment, it should still be possible to find cover at a decent price even if one of these factors applies to you.
It is also worth noting that some policies will not pay out under the following circumstances:
- If the insured party’s death is due to alcohol or drug misuse.
- If the death occurs as a result of involvement in war or terrorism.
- If the death is the result of suicide or self-inflicted injuries.
- If the death is the result of gross negligence or a similarly reckless act.
Unsurprisingly, however, the proportion of claims for life insurance payments that are turned down by insurers are very low.
And the industry is taking steps to speed up payouts: in May 2011, trade body the Association of British Insurers announced plans that would see the average time taken for life claims to be settled fall from four months to four weeks.
Check the small print
Aside from these exclusions, there may be other clauses in your policy’s terms and conditions that you should check.
For example, you should look at your premium levels and see whether these are guaranteed to remain the same for the duration of the policy, or whether the insurer can reassess them after a fixed period of time.
In the latter case, you could find the cost of cover increasing substantially if you have suffered any health problems in the interim. But a policy with reviewable premiums may be cheaper initially than cover which guarantees not to increase the cost of insurance at any point in the future.
Under current rules, insurers have the right to cancel any type of policy if they find that a customers has not disclosed “all material facts” when applying for cover.
For example, with car insurance, a policy could be cancelled if the motorist did not tell the insurer that they had an unspent conviction for speeding or drink-driving.
With life insurance, applicants must ensure they tell insurers about any serious health problems, say.
But new laws proposed by the government in spring 2011 aim to change the system by putting the onus on insurers to make sure they ask the relevant questions in the application process rather than relying on individuals to offer all the pertinent information.
In any case, life insurance applications are quite detailed and are designed to get all the information the provider could possibly need. But until the law changes, it is up to customers to make sure nothing is missed out.
If you think there are any matters which could affect your cover and which your insurer needs to know about, it is best to come clean rather than taking the risk that the policy will not pay out when your family needs it.
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