If a life insurance company goes out of business, the Financial Services Compensation Scheme (FSCS) is the safety net for eligible policyholders: it can pay towards the cost of replacing the policy with one from a different insurer, return part of the unused premium, or pay valid claims in full or in part. Which of those applies depends on the type of policy and on whether the failed insurer was regulated by the Prudential Regulation Authority (PRA).

When an insurer's name and policy type are all you have to go on, the form on this page books a call, free of charge, with a broker who has FCA authorisation.

What does the FSCS do when a life insurer fails?

The FSCS says that if you paid for cover with an insurer that has failed, it "may be able to compensate you", subject to conditions, limits and requirements set by the PRA in its rulebook. The first test is the regulator: to be eligible, the failed company must have been regulated by the PRA.

The scheme describes three ways it protects eligible customers of a failed insurer:

  • if the policy is replaced by a new policy with a different insurer, it can pay the new insurer towards the cost;
  • if the policy is not replaced and you are owed part of your premium back, it funds and processes that payment;
  • if you have a valid claim, it pays 90% or 100% of the claim value.

Zurich's key features document for its Life Protection policy (print reference NP720500009 02/25) adds a point about order. It says that for life assurance products the FSCS's "first responsibility is to ensure the cover continues rather than pay compensation". That is Zurich's account of the scheme for life assurance products, and it fits the first of the three routes above.

Who regulates UK life insurers?

Two regulators share the work. The Bank of England regulates and supervises insurers through the PRA, which sets rules requiring firms to hold enough capital and have adequate risk controls. It can step in if an insurer is not protecting policyholders adequately. The Financial Conduct Authority (FCA) regulates the conduct of financial firms and works with the PRA.

You can see this on an insurer's own paperwork. Zurich's document describes the company as "authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority". The FCA's Financial Services Register is a public record of firms authorised at any point by either regulator, so it is the place to look up an insurer or a broker by name.

Is a life insurance payout protected in full?

For most life cover, yes, if the insolvency practitioner (the person or company managing the insolvency) accepts the claim. The FSCS says it will repay these in full:

Type of coverShare of a valid claim the FSCS pays
Whole of life assurance100%
Term life insurance and critical illness insurance100% for a failure dated 3 July 2015 or later
Income protection insurance100% for a failure dated 3 July 2015 or later
Health and dental insurance90%

For term life, critical illness and income protection, the FSCS says claims against a firm that failed earlier than that date are 90% protected. Those are the limits for firms failing now. For older failures the FSCS lists lower historical limits: where an insurer failed between 1 January 2010 and 2 July 2015, only compulsory insurance was protected at 100%, and all other kinds at 90%.

Where a type of cover is treated differently, a broker with FCA authorisation will go through your own policy as soon as you have sent in this page's enquiry form.

What about premiums you have already paid?

If a policy is not replaced and you are entitled to the unused part of your premium, the FSCS funds that refund, but it says it can only repay 90% of the calculated refund. Where the policy is in your name but was paid for by a loan from a finance company that required you to assign your rights to them, the refund goes to that company.

Valid claims fall under the claims route above. How a claim is handled once someone has died is covered in what happens to life insurance when you die, and refusals by a working insurer are in when an insurer can refuse to pay.

What can you do if you are worried about your insurer?

Start with what is on file: your policy documents, the insurer's name as it appears on them, and the register entry for that name. Zurich's key features, quoted above, carry a compensation section, so it is worth seeing whether your own key features or policy terms have a similar section.

An insurer that is still trading but has ended your cover is a different problem, and whether an insurer can cancel your policy has its own page. A complaint about how an insurer has treated you goes to the firm first and then the free Ombudsman, as set out in how to complain about a life insurer. How often insurers pay claims is in life insurance claims statistics.

Whether premiums stay due while a failed insurer's book is moved on is a point the broker can clear up for your policy when you speak.

For the wider background, see how life insurance works. A funeral plan is a separate product with a separate scheme, and what happens if a funeral plan company goes bust covers it.

Frequently asked questions

Are life insurance companies insured?

Policyholders are protected through the FSCS, which may be able to compensate eligible customers of a failed insurer that was regulated by the PRA. An insurer's key features document can say whether it is covered: Zurich's says "We are covered by the Financial Services Compensation Scheme (FSCS)".

Can a life insurance company go out of business?

Yes. The FSCS publishes a list of failed insurance firms. The PRA, for its part, supervises insurers so that it can step in if one is not protecting policyholders adequately.

What happens to term life insurance if the company closes?

Under the FSCS's summary, a valid term life claim is protected at 100% for an insurer failing from 3 July 2015 onwards, if the insolvency practitioner accepts the claim. If the policy is replaced by one with a different insurer, the scheme can pay the new insurer towards the cost.

Unsure how a failed insurer would affect the policy you hold? Share what you know in the form on this page, then a broker will ring you for free.

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