Even when a suicidal person holds a life insurance policy, the undoubtedly twisting decision to end one’s life offers no easy financial answers to care for those we love. Insurers pay out in some instances, but some contractual disqualifiers exclude a death benefit paid to policy beneficiaries.
When does life insurance cover suicide?
After the contestability and suicide clauses in an individual’s life insurance policy expire, life insurance covers a policyholder’s suicide in many cases. Usually for a two to three year period, the exclusionary clauses place stipulations around death benefit payouts. Once these clauses expire, however, beneficiaries receive the death benefit left to them by the policyholder.
The contestability clause accounts for the circumstances around a policyholder’s death and usually applies to the first two years of the effective policy date. During these first couple of years of the policy effective date, the contract enables insurers to deny claims for a variety of reasons. Whether by suicide, dying while performing an illegal act or something else, insurers deny claims for any number of reasons.
The incontestability clause kicks in once the contestability clause expires. Any denial of benefits at this point in the insurance contract centers on proof of serious misrepresentation or fraud based on the initial insurance application. Failure to disclose a history of depression or high-risk activities, for instance, meet the criteria for denying a claim. Minor misstatements fall beneath the threshold for denial of benefit.
A separate and more narrowly-focused clause, the suicide clause, also extends for two to three years. During this timeframe, the clause stipulates for an allowance of investigation of the policyholder’s death. During this period, insurers that demonstrate the policyholder committed suicide, or if law enforcement or a medical examiner rules the policyholder’s death a suicide, the insurer denies any claim to the death benefit.
Notably, the timeframe on the contestability and suicide clauses restarts the exclusionary period when policyholders change their policy, even when the insurer remains the same. In other words, converting two term life insurance policies to a single policy with a larger payout value initiates the start of another exclusionary period of two to three years.
At the same time, maintaining the same death benefit and converting from a term life insurance policy to a whole life insurance policy negates a reset on the exclusionary period and transfers with the same timetable status as the previous instrument.
How does group life insurance treat suicide?
Group life insurance, the kind provided as a workplace benefit, typically pays a death benefit on suicide claims without the two year contestability restriction.
In cases of a private purchase of supplemental insurance, such as through an employer, professional organization or other entity, a contestability clause likely applies. Contractually speaking, insurers investigate claims and possess a wide latitude for denial of a claim in the first two years of the effective policy date.
How do life insurance payouts work for suicide?
A policyholder’s suicide after the exclusionary periods pay a death benefit to the beneficiary just as it would for death from an illness or any other insurable cause.
A policyholder’s suicide during the exclusionary period provides no payout of the death benefit. Very often, however, insurers pay out the amount of premiums paid on the policy minus any premiums owed before the policyholder’s death. Insurers also subtract loan amounts on any death benefit payout on permanent policies—both whole and universal policies that contain savings and lending features.
What do you do if your claim is denied?
Insurers contest and deny claims they attribute to an uninsurable cause like suicide when it falls in the contestability or suicide clause exclusionary periods. Insurers typically defer to law enforcement or to medical examiners to declare a policyholder’s cause of death.
In some instances, however, insurers undertake their own investigation and consider relevant information—the death certificate and autopsy report, testimony from friends and family, health history and medications, as well as psychiatric records, drug and alcohol abuse along with illegal behaviors, weapons purchases and possible suicide notes. The insurer bears the burden of proof in demonstrating the policyholder died from suicide.
Policy beneficiaries who disagree with a finding of suicide during the contestability period and who receive a claim denial for an insurable cause of death can contest the decision, quite possibly with legal action. While murky scenarios like death from an overdose of a prescribed medication leave room for debate over insurable and uninsurable causes of death, contesting a denial opens the door to receiving some level of payment.
Avoid application misrepresentations
Policyholders who misrepresent their physical and mental health on a life insurance application leave a wide opening for an insurer to contest any claim on the policy based on fraud. A claim on the policy of a smoker who claims smoke-free status, for instance, receives a denial once insurers discover smoking-related disease as the cause of death.
Consult state laws
Some states provide protections to beneficiaries. Check the applicable state laws around life insurance contestability and determine rules around exclusionary periods. States impose varying restrictions around contesting contracts, which limits the window to overturn a denial. Additionally, some states restrict the application of new suicide clauses in converted policies.
Frequently asked questions
What is the best life insurance policy?
The best life insurance policy reflects the number of years for which the policyholder wants coverage. Referred to as the “term” of the policy, term life policies typically remain effective for periods of 10, 20 or 30 years. Permanent whole life and universal policies, on the other hand, represent a policy duration through the end of life. Regardless of when death occurs, the policy pays a death benefit.
What kind of premium payments are required when buying life insurance?
Monthly or annual premiums apply to life insurance policies. Comparing quotes from multiple insurers provides insight into varying requirements and the different rates available.