According to the American Foundation for Suicide Prevention, over 44,000 Americans commit suicide each year. There have surprisingly been a few times when I’ve been on a call with a potential client, and before I had the chance to ask any basic questions, such as date of birth or health history, they jump in and ask, “does life insurance cover suicide?”
The short answer to their question is yes. However, there are a few cases in which suicide is not covered. Insurance companies do pay their claims about 99% of the time, but there are other cases such as suicide, insurance fraud, and death as a result of illegal activity, for which they have an incontestability clause that they can deny claims and will not pay death benefits.
What is a Life Insurance Clause?
Life insurance clauses are exclusions or provisions to the policy agreement that are meant to protect the insurance company from fraud, misrepresentation, and suicide (to name a few). These are usually the fine print most people don’t take the time to read. Let’s look at the two most predominant clauses: suicide and incontestability.
The suicide clause states that if you die as a result of a suicide within a specific time frame after your policy began (two years with most policies), the insurer will not pay your beneficiaries. After the two years are over, they can’t contest the claim and must pay the death benefit.
The contestability period is a two-year window in which the carrier has the right to go back and investigate the cause of the insured’s death, if the death occurred in the first two years of the policy starting. Keep in mind, this clause is not just relevant for a suicide.
If you buy a policy and die from cancer, the insurance company will go back and order medical records to see if they can prove that you lied or committed fraud. They will check records regarding previous health issues or habits that were NOT disclosed on the application by you, such as smoking, or family disease history.
The clause gives them the legal right not to pay claims if they can prove non-disclosure. Always be honest on the application, if not, you are risking your family not getting the benefits for which you purchased insurance.
What are the Differences Between the Suicide and Incontestability Clauses?
The incontestability clause deals with a broad range of situations – any death that occurs within the two-year contestability period. Say someone dies from a drug overdose within two years after he purchased his policy, the insurance company has the right to investigate and get to the bottom of the drug use. They can interview family members and friends or witnesses.
They will order an autopsy report, physician records, or hospital reports. Or, they will go back to the application to see how someone answered the questions regarding alcohol use, if the death is related to diseases caused by long-term alcohol consumption. If they can prove that the policyholder lied or committed fraud, they don’t have to pay the death benefits to the beneficiaries. The suicide clause only deals with the situation of a suicide, within 2 years after you bought the policy.
Why is Suicide Excluded?
Let’s be honest, when you buy life insurance coverage, it has to be a fair game for everyone. This means that you have to pay the premium, and the company has to pay the benefits if you die.
You buy life insurance in case the unforeseen happens, and they will pay the benefits in case the unforeseen happens. The insurance companies can’t allow someone to buy a policy with the “intent to collect benefits.” In the case of suicide, this means, “I will buy life insurance because I’m planning to commit suicide so my family will have money.”
Furthermore, in order for the insurance company to stay in business and not be cheated by the masses, they do underwriting and background checks to assess the risk you pose to them. This is their part of a fair game. They have exclusions to protect themselves in case you lie or don’t give them your full story (you “don’t play by the rules”), or commit suicide a day after you buy your policy.
Understanding life insurance clauses and provisions is extremely important for anyone who purchases coverage. When life gets heavy, taking your own life for any reason can sometimes seem like a perfect solution to your huge problems.
However, the void left to your loved ones is worse than any problem anyone can ever imagine. The money they get from a life insurance policy will not replace you in their lives. If you or someone you know is considering suicide, please talk to someone about your thoughts: http://suicidepreventionlifeline.org/