Life insurance payouts explained

We understand that when your loved one dies, it turns your whole world upside down. But it’s important to contact L&G as soon as you’re able to, as they will need documentation to support your claim and release the funds to you.

Step 1: Notification

The first step is notifying our insurance provider, L&G, that your loved one has passed away. They’ll need certain information including:

•    The policyholder’s name
•    Policy number
•    Cause of death
•    The policyholder’s GP or doctor’s details
•    Information about you as the caller and your relationship to the policyholder.

Step 2: Assessment 

Next, L&G will assess the situation and determine whether further information is needed. You may need to complete a claim form and provide evidence, like a death certificate.

Step 3: Life insurance payout

Once the claim is validated, a payment will be paid to the legal policyholder if they’re alive (in the case of critical illness cover), or if they’re deceased, their beneficiary or executor of their will. The claim will be paid as a lump sum to a UK bank account. If you need to be paid outside of the UK, transfers can be made but you will be responsible for the cost.

The level of payout your family can expect depends on the sum assured on your chosen life insurance policy. If you have a level life insurance policy, your cover amount stays the same during the length of the policy, regardless of when you pass away. 

Decreasing life insurance is designed to align with a repayment mortgage. This means that your level of cover decreases over time (roughly in line with mortgage repayments). So, your beneficiaries will receive less the longer the policy runs for – ideally keeping pace with the amount owed on your mortgage loan, so that the remaining balance of the mortgage is paid.

How long does a life insurance payout usually take?

While L&G aim to pay claims as soon as they can, the exact length of time it takes for a life insurance policy to pay out in the UK varies. It depends on the specifics of the claim, as well as whether additional information needs to be gathered and considered.

Sometimes legal delays can slow things down. There are certain processes that must be followed before the deceased person’s estate can be passed down. If the deceased has a will, the executor will apply for a Grant of Probate which states they have the authority to deal with your loved one’s assets. But if there isn’t a will, the administrator will need to apply for a letter of administration (known as a grant) – which can cause delays.

If you put your life insurance in trust, your family may be able to avoid these lengthy legal processes. They may receive the cash sum faster, as the payout isn't dependent on probate. 

Who can make a claim on a life insurance policy when someone dies?

It is important that the claim is paid to the correct person. Here’s what you can expect to happen, based on the policy:

Joint policy in survivor's discretionary trust

If one of the policyholders dies, the payout goes to the surviving policyholder (if they survive 30 days after the first loss). But if both policyholders die, the lump sum is paid to the trustees for distribution, or to use the lump sum for the benefit of the beneficiaries.

Joint policy not in trust

In this case, the payout will go to the surviving policy holder. Half of the sum will also be deemed to form part of the deceased policyholder's estate. 

If both policyholders died at once, the younger person is deemed to have survived their older. This means that the payout forms part of the younger individual’s estate and could be subject to Inheritance Tax. 

Single policy in trust

With this arrangement, the payout would go to the surviving trustees who can then distribute or use the payout for the beneficiary of the trust.

Single policy not in trust

If the life insurance policy isn't in trust, the payout will form part of the policholder's estate and be liable for Inheritance Tax.