BLOG: Life Insurance; dispelling the myths.
Posted February 15, 2023
A recent research by Ello Group showed that only 13% of consumers trust their existing life or health insurance provider however that certainly does not reflect the reality of the reassuringly high rates of successful claims made.
The published data for Royal London* (as just one example) shows that in 2021, the average successful claim rate across all its products was 99.5%, with this over 84,000 claims and a whopping £632 million paid out.
There are a multitude of common misunderstandings about protection products. Here are some of the most common ones that you may also think are true:
It won’t pay out
Our Head of Financial Planning, Barry Jones recently asked a client to submit a critical illness claim for her son who had undergone a lobectomy of the lung. She had mentioned it to him in passing during a regular review but had not thought to attempt to claim. When they looked at her plan together, the condition was indeed covered, but he was 12 months post the maximum age to claim at the point he had the procedure. Barry submitted a claim, with very low expectations, as the surgery had been required before the end term of the plan for children’s cover, but his surgery had been repeatedly delayed due to Covid. The insurer met 50% of the claim out of goodwill which our client was very happy about.
I need to have cover in place for a certain period of time before it pays out
We often get asked by clients how long they have to have ‘paid into’ the plan before it will be live and the insurer will meet a claim. This seems to be a common misunderstanding and can sometimes be the client getting confused with the over 50s guaranteed life market plan.
A recent example of this is where a couple were selling their home to buy a guesthouse and have a change in lifestyle. The lending on the guesthouse and associated life policies were all agreed and ready to start, but the clients had not completed on the purchase. They asked us not to start the polices until the lending had all completed and they were in the property. Devastatingly, the husband was killed in a motorcycle accident in that interim period. Despite the cover having not been started, the policy we had arranged paid out and gave the wife a financial cushion to not have to immediately worry about money.
If I make a slight error on my application, the insurers will use this to not meet a claim
Whilst the accuracy of application is of course of great importance, you may be under the impression that, should you claim, insurers will look for innocuous examples of slightly incorrect detail, even totally unrelated to the claim itself, to invalidate the policy and refuse to pay out. This is something we reassure our clients is not the case and we will always work hard to ensure you receive money you are eligible for.
Suicide is not covered
With the exception of the first twelve months of a policy, insurers will meet life claims with the cause of death being suicide.
I have to have life insurance or I won’t get a mortgage
Whilst in the past it used to be a condition of sanction for many mortgages for a life policy to be in place to support a mortgage, the only policy that banks insist upon now is buildings insurance. The equity the homebuyer has in the house is all the security a bank requires, with the ultimate spectre of repossession being the mechanism whereby the bank can recoup its investment should a mortgage be consistently in default.
The proceeds of a claim will automatically go to my partner
We find that one of the most potentially problematic misunderstanding of all is the belief that, should a client take out a policy and pass away, the monies will automatically go to their partner or intended beneficiaries. It makes logical sense that, should you live with a long-term partner, perhaps owning a property together, or having children together, that you would be treated (legally upon death) the same as if you were married. Unfortunately, this is not the case, and individual’s have no legal right to their partners property upon their death, unless a will is in place.
If is really important to write life policies into trust, so that the monies go to the correct and intended beneficiaries. With figures quoted by Aegon as low as 6% of life policies actually being written into trust, clearly this is a common misconception.
By understanding these common misapprehensions and addressing them head on with real information and real-life examples, we work together with our clients to build trust in the products that we know serve them well in protecting themselves, their households and their families.
We’re currently the UK’s No 1 Protection Advisor of the Year! We’re a small team and you’ll be given your own dedicated adviser, someone who’s a protection expert, for you to call, email, visit or text.
We are not all about selling, we review your situation regularly, using our understanding of the complexity of critical illness plans and medical conditions. By seeing the whole picture and knowing your financial goals we can really add value and help you with your broader life plan.
For a general chat call the protection team on 01270 620555 or click here to get a quote.