The total amount paid to 128,500 customers with protection insurance in the UK in 2014 was £3.44bn, according to the Association of British Insurers (ABI).
The figure is up from the £3.08bn paid in the previous year to 98,900 people. On average in 2014, insurance firms paid £9.4m to 350 individuals and their families daily.
The ABI said almost all (99.98%) of whole life insurance policies were paid, which were worth a total of £540m. The average payout cost insurers £7,400.
By contrast, total permanent disability (TPD) insurance had the highest rejection rate within protection insurance policies, with 64.1% of claims paid, worth £33m. The ABI said this was due to the lack of clarity about what circumstances qualified as "total permanent disability".
Since the definition of TPD was introduced in the ABI's Statement of Best Practice for Critical Illness Cover in 2011, the share of declined claims had "steadily fallen". "This trend will continue as all new TPD policies are tested against the industry standard set by the ABI," the organisation said.
The TPD payout rate has increased from 50% in 2009. The average claim for this product was £73,200 in 2014.
The average payout on a critical illness policy was £67,039, with 92% of claims being paid. This is an increase from 80% in 2005. The ABI said there had been a "steady rise" in the percentage of claims paid since the introduction of the ABI's code of practice on non-disclosure, first issued in 2008. It clarified which medical information customers needed to share with insurers.
Individual income protection policies cost insurers £134m, with the average payout being £10,097. Some 92.9% of claims were paid out.
The average payout on term life cover was £60,900 with 98.7% of claims being paid. In 2014, insurers paid out more than £1.5bn in claims.
James Dalton, ABI's director in charge of protection policy, said: "At the most stressful times, insurance can make a real difference. These figures show that 97.7% of all types of protection policy claims are paid allowing people to focus on other challenges."