Life insurance payout rates are high, but consumer trust is low

“Financial services” encompass a wide variety of services, including credit unions, banks, and insurance companies. The latter industry had trust in them further damaged by the recent Denise Ganas scandal. Insurance company Momentum denied Ganas’ claim after her husband was killed in a hijacking, which resulted in a public uproar.

However, looking at this one case in isolation can mislead consumers. The numbers show that Denise Ganas’ situation was the exception, rather than the rule.

The reality of insurance

According to the Association for Savings and Investment South Africa (Asisa), 99.3% of all claims made to insurance companies were paid back in 2018. In the UK, that number was 97.8% for the same year.

Payout rates are high by design. Insurance companies can’t exist unless people trust them enough to hire their services and pay their premiums on time. They are in the risk management business, and their business model relies on selling policies to a number of people large enough to cover the payout of any claims that are made. Frivolously denying claims can make paying customers abandon the insurer in droves, which in turn can sink the company.

Even justified denials can be detrimental. Momentum’s decision was in accordance with the policy terms signed by Ms Ganas' late husband. However, public pressure made the company change its policies to accommodate Ms Ganas’ claim — they ended up paying her in full, 18 months after her husband passed. The company stated: “Momentum is in the business of paying claims and we have therefore taken the [public’s] criticism to heart.”

Ms Ganas was in the vast minority, one of the 0.7% of cases where a life insurance claim gets rejected. Still, many took her scandal as a reason to pass on getting a life insurance policy, which isn’t good.

A life insurance payout can make the grieving process a lot easier. You can get a life insurance quote online to see how much a policy would cost you.

Reasons why claims get denied

Claims often get denied due to mistakes that can be avoided, such as:

1 - Non-disclosure. You are asked to disclose a wide range of medical and personal information when you sign your insurance policy. Fail to disclose any relevant information — especially dangerous habits or a pre-existing condition — may get your claim denied.

2 - Time table. Not all life insurance policies will cover you forever, and not all causes of death are covered as soon as you sign it. Suicide is a common example. Often, when suicide is covered as a cause of death, said coverage only enters into effect one or two years after the policy is signed.

3 - Illegal activity. Death during the course of criminal activity is very rarely covered. That includes being shot by the police while trying to rob a bank, for example. However, it can also relate to minor crimes. If you have a heart attack while trespassing private property, your family may be denied their claim.