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Impact of insurance payments on universal credit


Publication date:

01 November 2018

Last updated:

18 April 2019


Chartered Insurance Institute

A marked improvement on the arrangements for the outgoing working age legacy benefits has been clarified by DWP.

This clarification was sought by by the Building Resilient Households Group on how payouts from term life, critical illness and terminal illness insurance will be treated for means tested benefits for working age people.

  • BRHG sought clarification from the DWP regarding the impact of insurance payments on income related benefits
  • Capital used to pay off debts will not be used to determine entitlement for Universal Credit
  • Only capital remaining, if over £6,000, will be used to calculate any benefit
  • CII welcomes clarification that those under Universal Credit are not worse off if receiving income protection payments

The Building Resilient Households Group (BRHG) sought clarification from the Department of Work and Pensions (DWP) on how payouts from term life, critical illness and terminal illness insurance will be treated for means tested benefits for working age people.

The key change is that Universal Credit (UC) legislation makes it clear that if a person uses their capital to pay off or reduce a debt, including a mortgage, they will not be treated as depriving themselves of that capital. Once the capital has been used to pay off a debt, it will no longer be taken into account in the assessment of entitlement for Universal Credit. 

This is a marked improvement on the arrangements for the outgoing working age legacy benefits. It shows that the new benefits system being rolled out will allow people to use insurance payouts to reduce or pay off their mortgage or any other debts.

Implications for mortgage holders, advisers and insurers

Richard Walsh, Joint Chair of the Building Resilient Households Group, said: “This clarification means that:

  • UC claimants who receive a lump sum from an insurance policy can use it to pay off all or part of their mortgage debt, knowing that only capital over £6,000 they have left will be taken into account against their benefit
  • Advisers should check, at the point of claim, if their client is in an area where UC has gone live. And whether the client is in receipt of a legacy benefit. Only claimants of UC, State Pension Credit and Housing Benefit for people over the qualifying age for State Pension Credit can benefit from the DWP clarification
  • Insurers should consider signposting new claimants to advice about the UC and legacy benefit situation.”

Dr Matthew Connell, Director of Policy and Public Affairs said: “The CII welcomes this useful clarification about Universal Credit. It is helpful for consumers to know that, under Universal Credit, they and their families will not be worse off if they take steps to protect themselves with term life, critical illness, and terminal illness insurance by paying off mortgage debts should they need to claim this state benefit.

The CII supports the work the Resilient Households Group is doing to build trust in insurance, so that consumers can be confident that protection insurance will put them in a better position should the worst happen.



Simone Fassom, Redleaf Communications

020 3757 6870

Notes to Editors:

More information about Universal Credit can be found on the Understanding Universal Credit website here:

Roll out of Universal Credit

Claimants who live in a Full Service area will need to make new claims for Universal Credit rather than existing benefits (JSA(IB), ESA(IR), HB, IS or tax credits). Full Service areas are being rolled out based on post code. This will be complete for all new claimants with up to two children by the end of December 2018. Claimants with three or more children will be able to claim UC from 1 February 2019.

You can check if you are in a UC area by reading the ‘Where you Live’ section here: 

Those claimants who are already receiving existing Legacy Benefits[1] will begin migration to Universal Credit in July 2019. This is due to be completed by 2023. 

Universal Credit – Regulations and Guidance

Regulation 50(2) of The Universal Credit Regulations 2013(SI 2013/376) reads:

(2) A person is not to be treated as depriving themselves of capital if the person disposes of it for the purposes of—

(a) reducing or paying a debt owed by the person; or

(b) purchasing goods or services if the expenditure was reasonable in the circumstances of the person’s case.

The DWP have confirmed that this does include mortgages.  The DWP have also agreed that the next version of the Advice for Decision Makers (ADM) guide will include an example to show that paying off mortgage debt will not be treated as deprivation of capital for UC benefit claimants.

Working age legacy benefits

For legacy benefits the ‘deprivation of capital rules’ mean that if a claimant uses capital to pay back a debt before the agreed date, they may be treated as still having the capital. This may occur  when, for example, they pay off their mortgage and the agreement says it is not due to be paid back for another 15 years or when they make payments to a flexible current account mortgage which reduce the outstanding balance on the mortgage.

In practice many insurance policies were assigned to the lender such that the claimant could not access the cash. This was especially the case for endowment mortgages. As such the deprivation of capital rules would not apply. There were still around 860,000 of these policies at the end of 2016. However where policies were not assigned to the lender the deprivation of capital rules do apply.

Capital limits

 The capital limits are the same for UC and Legacy working age benefits:

  • Claimants are not entitled to benefit if their capital is above £16,000
  • Couple claimants have a combined capital limit of £16,000 and the capital of both partners is combined.

When the total of capital is above £6,000 claimants are treated as having tariff income of £1 a week for each complete £250 of capital over £6,000 up to and including £16,000.

In Pension Credit there is no upper capital limit. Capital up to £10,000 is ignored. For capital above £10,000 tariff income of £1 a week for each £500 (or part of £500) is taken into account.

The Chartered Insurance Institute (CII)

The professional body dedicated to building public trust in the insurance and financial planning professions,
the CII’s 125,000 members commit to high professional standards. The CII works with businesses to develop bespoke, company-wide solutions that ensure competitive advantage by enhancing employees’ technical and professional competence. Success in CII qualifications is universally recognised as evidence of knowledge and understanding. Individually, our members are able to drive their personal development and maintain their professional standing through an unrivalled range of learning services and by adhering to the CII Code of Ethics.


[1] Income-based Jobseeker’s Allowance, income-related Employment and Support Allowance, Income Support, Housing Benefit or tax credits.











This document is believed to be accurate but is not intended as a basis of knowledge upon which advice can be given. Neither the author (personal or corporate), the CII group, local institute or Society, or any of the officers or employees of those organisations accept any responsibility for any loss occasioned to any person acting or refraining from action as a result of the data or opinions included in this material. Opinions expressed are those of the author or authors and not necessarily those of the CII group, local institutes, or Societies.