Most people considering suicide don’t stop to think about the effects of their action and the impact it will have on their family. However, a person who is looking to buy a life insurance policy may wonder if the policy will pay out if at some point in the future they decide to take this action. They wonder if they will be throwing their money away if they reach this point and actually do follow through with suicide.
Does life insurance pay in the event of suicidal death? The answer to whether a life insurance policy will cover suicide depends on several factors. Following is a general overview of how this type of death is covered under a policy.
The Suicide Clause
When an insurance company writes a policy, they typically put a provision in place known as a suicide clause. If the policyholder takes his or her own life within the first two years of obtaining the policy, death benefits typically will not be paid to the beneficiary. In certain states, the period is only one year. This clause goes into effect when a person dies as the result of an injury that is self-inflicted and has been put in to ensure someone doesn’t purchase a policy with the intent to immediately take their own life and provide financial support for their family.
What Is a Self-Inflicted Injury?
The problem arises when a family states the injury was not intentional. For example, a person may take out a policy only to die of a drug overdose a few months later. The insurance company could refuse to pay saying that the overdose was intentional. However, the family may argue that it was accidental. What happens in situations such as these? How is it determined whether the injury was self-inflicted?
The insurance company is responsible for providing the death was intentional and therefore suicide. In the event it is determined to be a suicide, the insurance policy then typically returns any premiums that were paid during this time period. However, policyholders need to remember that this only applies during the first two years of the policy, one year in some states. If the suicide occurs more than two years after the policy was obtained, the policy pays out regardless of whether the injury was self-inflicted.
However, there is an exception to this rule. If an employee receives life insurance through work and the employer pays the premium, the policy usually does not include a suicide clause. Therefore, the policy pays out even if the employee commits suicide a day, a week, or a month after the policy went into effect. Be aware that this only affects those policies that are paid for by the employer. If the employee makes the premium payments, the suicide clause is likely included.
In the event the policy lapses due to nonpayment, the suicide clause begins anew when the policy is reinstated. Policyholders need to be aware of this also, as it could affect the death benefits paid to the beneficiary in the future. For this reason, a policy should never be allowed to lapse to ensure benefits are paid to the beneficiary in a timely manner.
Unreported Pre-Existing Conditions
The suicide clause has been put in place to prevent fraud. Furthermore, this isn’t the only time when an insurance company may refuse to pay benefits. For instance, when a person fails to disclose a pre-existing condition or omits information during the application process, the insurance company may claim fraud and refuse to pay the benefits. For this reason, a person must share all information with the insurance company when applying to prevent delays in payment upon their death.
A good example of this is a person who smokes. He or she must tell the insurer about the tobacco use. A failure to do so could result in the benefits not being provided to those they are designated for. Although a person will pay less if he or she does not disclose all necessary medical information, the policy may be worthless at the time of his or her death.
Questions now arise regarding assisted suicide, as some states do allow for this option when a person has a terminal illness. While this only affects the small number of states that allow a person to ‘die with dignity’, policyholders need to understand the suicide clause is still in effect in these states. Life insurance companies are not required to pay benefits when a person dies at the hands of a physician or other authorized assisted suicide provider in the first two years after the policy is obtained.
People need to be aware of all clauses and policy conditions when purchasing any type of insurance. Life insurance is no exception. Be sure to ask plenty of questions and don’t sign any documents until everything is understood. This is the best way to ensure the policy pays out as expected at the time of the policyholder’s death.