Updated 16 May 2022
What are the odds of your insurance company actually paying out on your claim? Two-to-one against? Better than that, or worse? A recent survey by Drewberry Insurance reveals that most people’s estimates are way, way off. So what’s the truth? Article by Tom Conner.
Over the years, most of us have read stories along the lines of ‘Left Stranded After My Insurer Refused to Pay Out!’ If you’re contributing regularly to a life insurance or critical illness policy, such news may be seriously alarming. What’s the use of paying in all that money if, when it comes to the crunch, the insurer won’t keep their side of the deal?
But are insurers really so unlikely to pay out on claims? People seem to believe so. The 2015 Protection Survey by Drewberry Insurance1 asked 2,000 workers what percentage of life insurance claims they thought resulted in a successful payout. On average, people guessed around 50 per cent of the time. That’s right – the popular belief is that one in every two claims is refused.
It’s no wonder, then, that so many people don’t take out insurance like critical illness cover or income protection. They just don’t think it will ‘work’ when they need it. The problem is, they couldn’t be more wrong.
So how much do insurers actually pay out? Here are the verified figures.
Yes, that decimal point is in the right place. More than 97 per cent of consumers’ claims on vital protection policies resulted in a payout in 2015 according to the Association of British Insurers2 (ABI). For some types of insurance, the figure is even higher: for instance, insurers paid out on 99.9 per cent of claims made on whole of life policies last year.
Or to be exact, £3,607,396,000. This figure includes life insurance, terminal and critical illness insurance, income protection insurance and total permanent disability insurance.
For the people who had to make a claim on the terminal illness section of their life insurance policy (this pays out when clients are diagnosed with less than 12 months to live), the average payout was £100,440 with a successful claims rate of 93 per cent. This is cash that could be used to meet medical expenses, pay for end-of-life care, fulfil some of life’s ambitions – anything.
Income protection policies (where the policyholder receives a monthly income rather than a cash lump sum if they are medically unable to work) paid £9,799 in income to the average claimant in 2015, or £816.58 a month. This would go a long way to meeting crucial monthly commitments during an illness, such as housing costs and utility bills. The success rate of these claims was 91.2 per cent.
Even in the very short term, the number of successful claims on protection policies is rising fast. Between 2013 and 2015 alone, the number of successful claims increased by over 30 per cent, from 98,927 in 20133 to 129,136 last year, according to the ABI. This actually outpaced the increase in overall claims over the same period.
Over the past decade, the percentage of claims resulting in a successful payout has increased. Figures from the ABI reveal that the average payout rate for a critical illness policy (which pays out a lump sum if you’re diagnosed with a critical illness, such as cancer) increased from just 80 per cent in 2005 to more than 93 per cent in 2015.
Although you might expect friendly insurance societies to have superior rates of successful claims than their big, bad corporate cousins, the fact is that the payout rates from all insurers are generally excellent. Even the largest insurers, beholden to shareholders, have very high rates of claims, with some even beating friendly societies in certain areas. The vast majority of insurers now publish their payout rates. Drewberry’s useful protection insurance claims tool lets you access the last three years of payout rates across all insurers for life insurance, critical illness cover and income protection.
Drewberry’s survey shows that insurers rank below banks when it comes to consumer trust – even after numerous banking scandals and crises. Yet the actual figures reveal an industry that generally does what it says on the tin: you pay for the policy, and policy pays out when you need it nine times (or more) out of ten.
People who may have been put off from taking out protection, due to the prevailing ‘no payout’ myth, may well want to reconsider. An expert adviser who specialises in protection can steer you to the most suitable products for you.
If you found this article interesting, then you might also find our article on gap insurance informative, too!