UC Disregard of Capital & Critical Illness Pay Out

Roders67 · July 14

Hi all,

I had an incident at home, when working on my car (no it did not fall on me) which resulted in me suffering multiple spinal fractures. It has resulted in me being disabled. I have an active Life Assurance policy, and I submitted a claim. I have just been informed that the claim has been accepted, and will pay out, under the 'Critical Illness ''Loss of Independent Living'' category. The pay out will consist of three parts, those being the Critical Illness lump sum, a disability Income Premium (until the policy end date of October 2027, and also back dated to the date of the injury), and a back payment to recover the monthly payments on the actual policy.

This will take me and my wife beyond the £16,000 capital limit for UC.

I have been trying to find out if this can be classed as disregarded capital. I have spoken to a number of different organisations, and have been given contradicting answers. To say that I am confused is an under statement.

The issue seems to revolve around what is classed as a Personal Injury payment. I have been unable to find if a Critical Illness payout, on the grounds of loss of Independant Living, is classed as a personal injury payment. The wording used in the Advice for Decision Makers Chapters H2 and H5 is unclear. This is also the case on the with the wording used on the gov.uk 'Universal Credit: money, savings and investments' page. Here it says 'Personal Injury and illness compensation payments are not taken into account for the first 12 months after you receive them'

The issue seems to evolve around both what classed as a personal injury, and what is classed as Personal Injury Compensation. Does it matter if the Life Assurance Policy is mine, as it is still compensation for my injury?

Some front line advisors told me that insurance pay outs are not disregarded, although I do not know which specific type of insurance policies this applies to. Others have told me it will be disregarded. I have not managed to get passed the front line advisors in order to get a more detailed answer.

I have had previous negative and financially costly experience with front line advisors giving the incorrect information out. This includes staff from the DWP. Hence my scepticism.

There is a forum posting on here from February 2025 which touches on this, but in different circumstances. It is entitled 'UC and Critical Illness Pay Out'. However, it does appear that this person received a pay out from an employer. In my case it is my own personal Life Assurance Policy.

Critical Illness is not mentioned any where. The only terminology I have seen is in the Advice for Decision Makers (ADM0 Chapter H2 Capital Disregards, and Chapter H5 Unearned Income. ADM H2028 states 'Where a person has been awarded a sum in consequence of a personal injury to that person and the sum is:

held in trust or
administered on behalf of that person by the court or
only able to be disposed of by the direction of the court
the amount shall be disregarded from the calculation of the person’s capital1. (See also H2092.) Payments made from the Criminal Injuries Compensation Fund and the Thalidomide Trust will be included in this disregard.

Still no mention of Critical Illness. So what does it mean when it says 'awarded a sum in consequence of a personal injury to that person'. Does this include critical Illness pay outs, or not?

Such language is used in various sections of both the ADM H2 and H5 Chapters.

I also note that at the beginning of ChapterH2 H2 in the introduction it states
'H2001 All capital is to be taken into account unless it is to be1

treated as income or
disregarded.
1 UC Regs, reg 46(1)
Onus of proof
H2002 The claimant has to show that the capital can be disregarded. If there is no evidence to show capital can be disregarded, it is included when working out the amount of capital a claimant and their partner has.'

So is that the key, I have to prove this myself, or am I going on a wild goose chase?

I am wondering if any one else has experience in this particular field.

Roders67 · July 14

Further to this, would it be worth asking the DWP in advance of the pay out arriving. This would allow me to have a discussion with them prior to the finances arriving in my account, possibly enabling me to get through to a decision maker. Or is this a bad idea. As stated, I have had incorrect information in the past, resulting in a substantial financial loss.

Please do not get me wrong, I will definitely be reporting the pay out to the DWP UC team. In fact, by law, both the insuring company and myself are legally bound to report the payment. I am not attempting to evade the law.

worried33 · July 14

Whilst I cant give you an assured opinion of it can be disregarded, I can give a strong opinion, you need to report it, what you definitely dont want them is them discovering it themselves which looks bad on yourself.
This way they can tell you if its disregarded, and if they say its not disregarded, you will have the option of challenging that decision later.

Roders67 · July 15

Thank you worried33. I fully intend to report it, as both I and the insurance company are legally bound to do. I am starting to think the best advice I can get is through the UC desicion makers themselves. If they do not class it as capitol disregard it, then it can be challenged with a mandatory reconsideration. In that case, it would have to be treated by the wording of the law, which is where the Advice For Decision Makers (ADM) manual comes into play. It is a complex subject.

I totally agree, them finding out later is a bad move. Being upfront and honest is imperative.

Thank you for the reply. Have a good day.

SheffieldMan1976 · July 15

It pains me to say this but it appears that in most cases, the DWP aren't aware of their own rules regarding this kind of thing.

Roders67 · 2:49PM

Thank you Sheffieldman 1976.

I do share your view. Past experience tells me you need to get lucky with who your dealing with, with regards to them knowing their own rules. This subject appears to be a bit of a grey area.

Have a good day and weekend. 👍

UC Disregard of Capital & Critical Illness Pay Out

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