5 startling facts about insurance payouts

updated May 16, 2022

4 minutes of reading

Reading: How much can life insurance payout

what are the chances that your insurance company will actually pay your claim? two to one against? better than that, or worse? A recent survey by Drawberry Insurance reveals that most people’s estimates are way, way off. so what is the truth? article by tom conner.

adult-caucasian-child-daughter-41316

Over the years, most of us have read stories like ‘I was stranded after my insurer refused to pay!’ If she is regularly contributing to a life insurance or critical illness policy, this news can be very alarming. . What is the use of paying all that money if, when the critical moment arrives, the insurer does not fulfill its part of the agreement?

But is it really that unlikely that insurers will pay claims? people seem to believe it. The 2015 Protection Survey conducted by Drawberry Insurance1 asked 2,000 workers what percentage of life insurance claims they believed resulted in a successful payout. on average, people guessed right about 50 percent of the time. yes, the popular belief is that one in two claims is rejected.

It’s no wonder, then, that so many people don’t buy insurance like critical illness coverage or income protection. they just don’t believe it will “work” when they need it. the problem is that they couldn’t be more wrong.

mythbusters: ‘insurers don’t pay… do they?’

See also: Adderall prices: How much is Adderall without insurance?

So, how much do insurers really pay? here are the verified figures.

  1. Last year, 97.2 percent of protection insurance policy claims were accepted.
  2. yes, that decimal point is in the right place. More than 97 percent of consumer claims on life insurance 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 example, insurers paid 99.9% of claims made on whole life policies last year.

    1. Insurers paid £3.6bn in successful protection policy claims in 2015.
    2. 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 people who had to make a claim under the terminal illness section of their life insurance policy (this is paid out when clients are diagnosed with less than 12 months to live), the average payout was £ 100,440 with a 93 percent successful claim rate. this is cash that could be used to cover medical expenses, pay for end-of-life care, fulfill some of life’s ambitions, anything.

      Income protection policies (where the policyholder receives a monthly income rather than a lump sum cash if medically unable to work) paid £9,799 in income to the average claimant in 2015, or £816.58 per month. This would go a long way toward meeting crucial monthly commitments during an illness, such as housing costs and utility bills. the success rate for these claims was 91.2 percent.

      1. Nearly 130,000 clients and families benefited from protection policies last year, and the number is growing rapidly.
      2. Even in the very short term, the number of successful protection policy claims is increasing rapidly. Between 2013 and 2015 alone, the number of successful claims increased by more than 30 percent, 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.

        1. The rate of successful claims is getting better, not worse.
        2. See also: How to Find a Lost Life Insurance Policy – Experian

          Over the past decade, the percentage of claims resulting in a successful payment has increased. ABI figures reveal that the average payout rate for a critical illness policy (which pays a lump sum if you’re diagnosed with a critical illness, such as cancer) rose from just 80 percent in 2005 to more than 93 percent. in 2015.

          1. It’s not just friendship societies that are, well, friendly when it comes to paying claims.
          2. Although friendly insurance companies might be expected to have higher claim success rates than their big bad corporate cousins, the fact is that payout rates from all insurers are generally excellent. Even the largest insurers, beholden to shareholders, have very high claims rates, with some even outperforming the social security companies in certain areas. the vast majority of insurers now publish their payout rates. Drawberry’s helpful Protection Insurance Claims Tool gives you access to the last three years’ payout rates across all insurers for life insurance, critical illness coverage, and income protection.

            mistrust puts families at unnecessary risk

            the drewberry survey shows that insurers rank below banks when it comes to consumer confidence, even after numerous banking crises and scandals. however, the actual numbers reveal an industry that generally does what it says on the tin: you pay for the policy and the policy pays when you need it nine times (or more) out of ten.

            Perhaps people who have been put off buying protection by the prevailing “no fee” myth may want to reconsider. An expert advisor who specializes in protection can guide you to the products that are best for you.

            1 https://www.drewberryinsurance.co.uk/press-release/protection-insurance-survey-2015
            2 https://www.abi.org.uk/news/news-releases/2014/05/270-families-helped-every-day-by-life-critical-illness-income-protection-insurance- payments-2013
            3 https://www.abi.org.uk/news/news-releases/2016/04/record-amount-paid-out-in-vital-protection-insurance-claims

            if you found this article interesting, then you may also find our article on gap insurance informative!

            connect meI would like to speak with a financial advisor

            See also: New Jersey Insurance License State Requirements | Kaplan Financial Education