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Average Life Insurance Payout in the UK

It’s reasonable to ask those considering life insurance policies how much the beneficiaries will get should they pass. This guide will provide information on the average payout for life insurance and all the essential information about how payouts work.

How Do Life Insurance Payouts Work?

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The principles behind life insurance payouts are relatively straightforward in theory. A person takes out a life insurance policy, and the beneficiary claims a lump-sum cash payout should they pass away during the agreed term.

So are the policies and claims that simple? Will I get the total amount? Is there any risk of an insurer not paying out on a claim? We answer all the concerns about life insurance payouts below.

What is a Life Insurance Payout?

A life insurance payout is an amount paid to the beneficiary in a cash lump sum should they die while the policy is still active. Generally, those who take out life insurance plans want to protect their family from financial distress. That being should they pass away unexpectedly or want to plan for a future post-death.

People applying for life insurance policies will determine how much money their family needs to live after they pass and apply for a plan based on that value. If the application is successful, they’ll pay monthly premiums based on that lump-sum payout for either a fixed-term or until they die.

But there are family concerns that insurers won’t pay out after the policyholder passes due to specific circumstances or fixed-term agreements. Will the provider payout upon beneficiary claim?

Will a Life Insurance Policy Pay Out?

Despite insurance horror stories circulating the media, the life insurance statistics show that payouts for beneficiaries are high. Only in rare circumstances will beneficiaries see their payouts refused, which we’ll elaborate on further down the article.

See the table below outlining the UK’s top life insurers, whose payout rate generally exceeds 98% of processed claims.

Insurer Payout Rate
Royal London 99.1%
LV 94.6%
Aegon 98%
Zurich 99%
AIG 99%
Vitality 99%
Aviva 98.9%
Legal & General 98%

We note that payout rates can vary by different insurers. The market is competitive, and there are many options for life insurance policies. Expert brokers can clarify payout rates for various providers and explore opportunities for a tailored life insurance plan.

So with the payout rate giving peace of mind that you’ll likely be able to make a successful claim, what about the amount? Will you get the total sum, or are there any circumstances where you may not receive the agreed figure?

Will I Get the Full Amount from the Policy?

Following the misconceptions about claims on life insurance, if the claim is successful, the insurer will pay out the total amount. There won’t be an instance of whether you’ll only receive a percentage of the agreed cash sum.

Either you’ll get the total amount on the successful claim, or in the rare instance of refusal, you won’t get anything. That high payout rate paired with the guarantee of full payment gives beneficiaries peace of mind that they will receive the funds should they pass away.

The only exception surrounds the policyholder of an over 50s life insurance plan. There is generally a waiting period of one to two years before the payouts can get claimed.

Should the policyholder pass away before the entire payout clause becomes active, the beneficiary will only receive a percentage of the sum agreed or a refund on the premiums paid.

Now that we’ve established the payout statistics in life insurance, you may wonder how to make a claim should the policyholder pass away. We’ll look into the process below.

How Does a Life Insurance Claim Work?

Like most insurance plans, life insurance follows a relatively straightforward process in claiming the payout after the policyholder passes away. Pending that there are no anomalies in the claim, it works in three stages.

Like most insurance plans, life insurance follows a relatively straightforward process in claiming the payout after the policyholder passes away. Pending that there are no anomalies in the claim, it works in three stages.

1. Contact your insurer to notify them of the policyholder’s passing.

The first stage is to get in touch with the insurer when the policyholder passes away as the beneficiary. You’ll need to gather details about the plan, including the policy number and the contact details of the insured person’s doctor.

The claims team will also request your relationship with the deceased and may ask to verify that you are indeed the beneficiary of the policy. The insurers may request more documentation to verify the identity or get proof of death.

2. Your insurer will assess and verify policy action.

Once the notification stage is complete and the claims team have their requested verification, they’ll move on to process the claim. They will be in touch should they require further information or documentation, such as a death certificate.

3. Receive your life insurance payout.

If there are no anomalies in the policy or obstacles causing delays, the beneficiary will receive their payout. Should the legal heir of the policy also be deceased, the amount gets paid to a representative of the person.

The agreed amount will get paid directly into a UK bank account.

One of the most pressing questions that many policyholders will ask is how much will the beneficiaries get upon claim? The amount paid out depends on the plan and your premiums, but we can get a general idea of how much persons receive.

How Much Will I Get on a Life Insurance Payout?

We compare plans from the leading life insurance providers

The amount beneficiaries receive can vary greatly depending on the policy you have in place. Generally, the policyholder will work out the amount their family needs to live on should they pass away and apply for a plan based on that figure.

The average amount paid on term-based life insurance in 2019 was £77,535 and £3,465 on whole-of-life policies. We note that whole-of-life payouts are significantly lower as policyholders are of advanced age, and it’s more costly to secure a term-based plan.

So let’s look at some life insurance plans and their average payouts to give you an idea of what beneficiaries will receive upon policyholder death.

Plan 2019 Average Value
Term Life Insurance £77,535
Whole-of-Life Insurance £3,465
Critical Illness Cover £67,573

So should you claim after the policyholder passes, how long can you expect it to take before it reaches your account?

How Long Does a Life Insurance Payout Take?

There are many variables in the process which means payout times can differ. However, most insurers will pay the agreed sum on a policy within 30 days of receipt of a successful claim.

Beneficiaries can keep the payout time at a minimum by ensuring:

  • All payments on the policy are up to date
  • The term on the policy has not expired
  • All requested information on the claim is correct

Suppose you have critical illness cover or a life insurance plan that accounts for terminal illness. In that case, you can receive your payout if you have 12 months to live or less. Like death certificates for a claim after passing, terminal or critical illness will need a doctor’s confirmation.

We’ve mentioned that there can be a few obstacles that can hinder the life insurance claim. About the standard time it takes to process, what can cause delays in the claims process?

Is There Anything That Can Cause Delays in a Life Insurance Payout?

A few factors can cause delays when processing a claim for a life insurance payout. Many of those revolve around the insurer questioning the circumstances regarding death or information of the beneficiary.

Some of the leading factors that cause a delay in life insurance payouts include:

  • Inquest into policyholder’s death
  • The suspected suicide of the policyholder
  • Awaiting the verdict of a homicide trial
  • Withheld information in post-mortem
  • Suspected fraudulent activities
  • Incorrect information on claim
  • The policy was not under trust
  • The policyholder passed away without a will

Naturally, more factors could cause hindrance in the process, and times of delays will vary by provider. However, the shared trait between insurers is that beneficiaries will not receive payments until the claim proves valid.

We’ve covered what can cause delays in a life insurance payout, but what about the flat-out refusal of payments?

What Can Cause a Refusal of Life Insurance Payouts?

There are generally three things, albeit rare, that will cause a denial of life insurance payouts.

Suicide

Suppose the insurer believes there is a suspected suicide in the policyholder’s death. In that case, an inquiry will initiate into the cause of death. Should there be a confirmed suicide, the insurer will not payout on the life insurance claim.

This clause protects the insurer against persons looking to take their own life intentionally for payouts for their beneficiaries. Some exceptional circumstances vary by a provider that protects families against extraordinary cases of suicide.

Some insurers will offer a one-year exclusion where there will be no payout should the policyholder commit suicide in the plan’s first year. Past that year, the claim will get reviewed like any other. However, there will still be no payout if the insurer deems the death circumstances invalid as outlined in the policy.

Non-Disclosure

Suppose the insurer finds any information about the policy or claim was knowingly withheld or incorrect. In that case, they will deem the policy invalid and not payout for a share. While most claims are genuine, there are unfortunate instances where persons attempt to use life insurance policies to defraud the insurer.

That’s why it’s imperative to ensure all information is correct and up-to-date when claiming a life insurance payout.

Missed Payments

If the policyholder missed any monthly payments throughout the agreed term, the insurer would deem the payout claim invalid.

Who Gets the Payout When the Policyholder Dies?

The pre-arranged nature of the policy defines who gets the payout. The beneficiary can claim on the deceased according to the type of plan taken out outlined below:

  • Joint Policy – A joint policy usually relates to a couple in a marriage or civil partnership where both are holders of the life insurance policy. The surviving policyholder will receive the lump sum upon the other’s death. However, half of that sum would form part of the deceased’s estate.
  • Joint Policy in Trust – Should both policyholders pass away, the lump sum would get paid into a trust that would be available to the beneficiary.
  • Joint Policy Not in Trust – The lump sum will form part of the last policyholder’s estate if the policy is not in trust. That means if the deceased held a will, the payout would be distributed according to their final wishes. But if there were no will, the intestacy laws would get enacted. That means the money could get distributed unintendedly.
  • Single Policy in Trust – The payout would go to the surviving trustees nominated by the policyholder.
  • Single Policy Not in Trust – The lump sum would form part of the deceased’s estate.

One of the less asked questions, but a surprisingly typical scenario, is what happens if there’s no one to claim after the policyholder passes with an active policy?

What If There’s No Beneficiary When the Policyholder Passes Away?

Suppose there is no stated or alive beneficiary on your life insurance policy. In that case, the payout will go to your next of kin, which could be your spouse, children, or grandchildren. That means the lump sum paid will form part of your estate and be subject to inheritance tax as your other assets.

How Do Beneficiaries Usually Use the Payout?

Once beneficiaries have received the payout, they are free to use the funds as they see fit. Some of the most typical use of the lump sum includes:

  • Paying off the policyholder’s mortgage
  • Pay for their funeral costs
  • Cover any outstanding debts
  • Budget for family expenses
  • Provide an inheritance

Of course, beneficiaries don’t have to use the funds for these scenarios. However, if the policyholder dies unexpectedly, funds usually cover their remaining debts and expenses.

Where Can I Find Out More About Life Insurance Payouts?

Should you have any queries or questions about payouts in life insurance policies, there are expert brokers available that can answer them. They will also be able to help with comparing the market and finding a tailored life insurance policy should you have an interest in taking one out.

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