Suicide and Life Insurance – All you Need to Know
Insurance claims are the end result of all insurance policies taken. Maturity, Death or an early surrender are the claim types that an insurance company settles. While the above claim types hardly have any ambiguity surrounding them, a claim for death resulting from suicide wouldn’t be as clear especially if the policy taken is a term life policy. A competent insurance agent would be able to provide more clarity on this issue.
Definition of Suicide
Suicide defined merely would mean the killing of one’s own self. When a person intentionally takes his own life, it amounts to suicide. The reason could be anything – usually severe depression or an unbearable shock or even dire financial crisis. The end result undeniably is ending one’s own life. In other words, suicide is akin to destroying one’s own self.
Whatever may be the reason or motive, a lot of it is subjective. The understanding may differ from one person or company to another. Does life insurance pay for suicidal death? You may ask. Law and insurance companies try to understand the motive of committing suicide while processing a death claim involving suicide and life insurance.
Suicide and Life Insurance – Terms and Conditions
So, when does life insurance not pay? While it is a common practice for insurance companies to add a clause excluding suicidal death claim within 12 to 14 months from taking the policy.For these reasons, insurancecompanies also add such clauses for excluding Total and Permanent Disability claims should they arise out of an injury that is self-inflicted. This may also cover claims for loss of income or trauma resulting from such self-inflicted injuries.
Where the life to be insured has a past history of attempting suicide, the insurer would carefully assess the proposal. There is no standard procedure for processing such proposals for what makes life insurance void. Each case is approved or declined based on its merit.Various options may be considered while granting insurance cover to the proposed.
Insurance options available to the insured would be explained after a confidential assessment is done. This is done after consultations between the insurer and a specialist on terms that can be offered in such cases.
Policies both non-term and term life insurance have proper clauses or provisionsthat clearly mention how a suicide death claim would be dealt with. However, most life insurance policies have an exclusion clause of at least 12 months after issuance of the policy during which a suicide death claim if made is declined. In case of term life insurance, the exclusion clause usually is 2 years from issuance of the policy. Claims, where the exclusion clause is applicable, are typically declined.
The Underwriting Process
Underwriters determine the extent of the premium to be charged considering the possibility of suicide while processing a life insurance proposal. Factors like credit card debt, financial distress, past criminal records if any, police records, medical records of depression or any such information which trigger suicidal tendencies are various reasons life insurance won’t pay out while approving life insurance proposals, especially term plans.
Should any proposal throw up such findings the insurer may either charge a loading on the premium or entirely decline the proposal if the information includes typical life insurance exclusions. The decision rests on the extent of risk the insurer is exposed to.Premiums for such proposals are usually higher than regular proposals.
Premiums and Claims
The price of term life insurance depends on the risk the proposal may pose to the insurance company. Any suicidal indicators or tendencies that you display put the insurer at anincreased risk. Such proposals are either rejected, or their premiums are loaded depending upon the merit of each individual proposal.
A suicide death claim if received within two years of policy inception shall be discharged by paying an amount equivalent to the premiums paid minus any amount owing by the insured to the insurance company. This is irrespective of the mental condition of the insured.
In general suicide death claims are settled by returning the premiums paid if a claim is received within the exclusion period. If a claim is received after the exclusion period, then it is processed as a standard death claim if no other clauses apply. You can get complete information regarding suicide and life insurance from your insurance agent.
Need for a Suicide Exclusion PeriodClause.
AnExclusion period is necessary for the insurers to protect themselves from any premeditated, intentional insurance policy purchase. The two-year period covers this kind of intentional term insurance purchase as it is assumed that a person cannot possibly wait for two years to commit suicide if the policy was purchased with that intention.
However, the basic rules of insurance apply, i.e., the condition of a person’s health when the plan was taken is considered. His nominees cannot be deprived of the claim after the exclusion period is over, and the insured commits suicide. The premiums paid would be intended for creating an asset that rightfully belongs to the nominees.
The underlying implication while adding an exclusion clause is that if the decision to commit suicide were a premeditated purchasing insurance, the insured wouldn’t possibly wait till the exclusion period is over. An exclusion clause would protect the interest of the insurer in such cases, especially in term plans.
Period of Exclusion
Exclusion periods are generally for two years from the date of policy issuance for term life insurance policies. For traditional policies, a typical lifeexclusions clause is usually for a year. As an insurance contract is based on utmost good faith and is not a wagering contract, it is assumed that a proposer discloses his/her health and financial condition correctly at the time of purchasing the policy.
If a suicide death claim is received during the exclusion period, the claim would only be discharged after a thorough investigation into the cause of death and the circumstances surrounding it under suicide and life insurance rules. The insurer would also try to find out if any ‘material facts’ were not disclosed while the policy was bought. In such cases, the claims are usually declined, or premium paid amount only is returned.
However, under the Social Security Administration, the widow and children of the insured who committed suicide may get significant benefits subject to their meeting the guidelines under which such benefits are provided.The widow and children must meet SSA guidelines to get the death benefits, not the deceased. The benefits are provided to the spouses and children subject to the following exception under suicide and life insurance rules:
- The benefits are provided only where both the spouse of the deceased and the deceased have been married for at least nine months prior to the suicide.
Since an insurance contract is a contract of ‘utmost good faith’ a proposer is expected to disclose and not omit any fact that may materially impact the policy or adversely affect the insurer. It is for this reason that insurers usually have a predetermined “Contestable Period”which may be even a few years from the issuance of the policy. This does not form an exclusion clause by itself.
More about the Contestable Period
Should a death claim be received during the contestable period and the insurer discovers that a material fact was undisclosed by the proposer intentionally, the insurer may deny the claim, and it is what makes life insurance void. For instance, if the proposer had diabetes and did not disclose it while taking the coverage, this is one of the reasons life insurance won’t pay out. Sometimes even if the insured is alive and the insurer discovers that an omission was made, the insurance company may cancel the policy.
So effectively, a death claim even if it may due to an accident but if it occurs within the contestable period, would be sufficient reason for the insurance company to decline the claim. The nominees or beneficiaries may not get the claim amount in such a scenario. Besides, though the contestable period may be time-bound, cancellation of a policy due to omission to disclose a material fact would be applicable during the entire life of the policy.
Any material fact that may have a bearing or implication on the policy benefits is mandatory to be disclosed by the proposer.
Conclusion on Suicide Exclusion Clause
So coming back to the original questions, does life insurance pay for suicidal death? The answer is yes, but it is common for all term plans to add an exclusion clause, which is typically the first two years from the inception of the policy.Any suicidal death claim during the exclusion period may be declined by the insurer. Only actual premiums paid may be refunded during the exclusion period.
The exclusion clause under suicide and life insurance rules not only protects the insurance company from individuals taking policies for fraudulent purposes but also acts as a deterrent to any individual wanting to buy a plan to benefit his/her nominees by subsequently committing suicide. Contact your insurance agent today for complete information related to suicide and life insurance.