Life Insurance and Suicide
Whether you are young or old, rich or poor, or you are healthy or ill, suicide and its contributing factors can affect anyone. For those left behind after a suicide, it may be something that is never fully understood.
According to data available on suicide by the CDC in the US in 2014 there were over 40,000 deaths by suicide.
The question regarding suicide and life insurance is if the beneficiary of the policy would receive any death benefits if the policyholder takes their own life.
Suffering the loss of a loved one is tough, and being denied a claim for their life insurance may make things even more difficult.
However, if you have found yourself in this situation, you may receive the benefits.
Many life insurance policies come with standard exclusions that null and void any benefits should the policyholder pass away in a certain way, for example, suicide.
However, some policies will pay lout benefits even if the insured person died as a result of suicide, but the suicide would have had to be committed after being insured by the policy for at least two years (one year on some states) in most cases.
But, if the insured committed suicide within the first two years of their policy, the insurance company will likely just return the premiums paid, but there would be no additional benefits.
The Suicide Clause
A life insurance company won’t pay death benefits if the policyholder commits suicide within a specific period of time after their insurance policy takes effect. In most states, that period is two years, but one year in some states like Colorado.
However, after those two years are up, the suicide clause no longer applies. If the policyholder commits suicide after the suicide clause has expired, the life insurance claim typically can’t be contested. Their beneficiaries likely will receive the full payout of the death benefits.
The Contestability Clause
Like the suicide clause, the "Contestability Period" is a two-year window from the date that a life insurance policy takes effect. It says that if a policyholder dies within those first two years, their life insurer has the right to investigate their cause of death.
During this time, the insurance company can obtain an autopsy report, medical reports, and interviews with family and friends of the deceased.
Suicide versus Contestability
The suicide clause deals strictly with what insurers might call "intentional self-destruction" or "death by one's own hand".
If a life insurance policyholder commits suicide within the time period dictated by the exclusion, the life insurer will look for proof that their death was intentional. If it was, beneficiaries won't receive a payout.
On the other hand, the contestability clause applies to any death that happens in the first two years of the start date of a life insurance policy, whether or not it was intentional.
Say, for instance, that you die of lung cancer. Your insurer will look through your medical report to see if you have a history of smoking. If you do, and you didn't disclose that to your insurance company, they have a right to cancel your death benefits on your policy.
Why Exclude Suicide Coverage on Life Insurance?
Insurance policies include a suicide provision to protect insurance carriers.
Without the exclusion, a policyholder could buy a policy with the intention of committing suicide. As soon as their policy took effect, they could take their own life, and their beneficiaries would receive the policy's full payout.
Loss of a job, rising debt, a death in the family – these events might be so devastating, the promise of a life insurance benefit could be the deciding factor for committing suicide. The suicide clause tries to curb that incentive for a period of time.
The Burden of Proof is on the Life Insurer
For a death to be considered suicide, the insurance company has to prove that the policyholder deliberately took their own life.
Even if a policyholder's death is declared accidental, life insurers still have the right to investigate within the time period dictated by the suicide clause (usually two years).
Insurers might look at the policyholder's death certificate, autopsy report, or hospital report.
They might interview family, friends, and (unfortunately) witnesses. They might also review the deceased's mental health history to see if they had recent psychiatric care, diagnoses of mental illness, a history of suicide attempts or threats, recent changes in behavior, ongoing drug habits, or even receipts for weapon purchases.
A suicide note could also offer convincing evidence that the person intended to kill themselves.
What If the Deceased had Mental Health Issues?
When you apply for a life insurance policy you'll probably have to get a medical examination and/or have blood testing.
Approximately 90% of suicide victims have a mental illness, which is one reason life insurers typically require applicants to disclose any history of mental illness and drug or alcohol abuse and dependency.
If you have a history of depression, bipolar disorder, or substance abuse, and you don't tell your insurance carrier, they have a right to cancel your death benefit if you die – whether or not you committed suicide.
What If the Insured Died of an Overdose?
For an accidental overdose, the suicide clause won't typically apply.
However, if that overdose happens within the "period of contestability," (two years) insurance companies have a right to investigate the death.
They might conclude from an autopsy or witness testimony that the drug overdose was intentional, and therefore refuse the life insurance policy's payout to its beneficiaries.
If an overdose happens after the suicide clause expires, an insurer might still cancel a policy.
Intentional drug overdose could be viewed as "dangerous activity," which is grounds for insurance companies to cancel a death benefit.
They might also find that the person had an ongoing drug habit. If the person didn't disclose a drug habit when they took out their policy, the insurance company would consider the application fraudulent. The insurer has the right to cancel the policy.
A life insurance policy typically contains only one outright Exclusion: The Suicide Clause.
Depending on the state, it will be either a one-year or two-year suicide clause.
If you commit suicide within the first year or two years of the contract, the beneficiary would receive the premiums back but not the death benefit.
The Suicide Clause – Usually states that no death benefit will be paid if the insured commits suicide within two years of taking out a policy.
Whenever an insured person replaces an existing life insurance policy with a new one, the time clock for the suicide clause is set back to zero and starts over again.
The Incontestability Clause – Usually says that if the insured person made misstatements on the policy application, and dies within two years, the company can decline to pay the death claim. After that, the policy is "incontestable" except in cases of outright fraud.
Just as with the suicide clause, the clock on the incontestability clause is reset whenever someone replaces his or her existing policy with a new one.
One Year Suicide Clause
In some states like Colorado, there is a one year suicide exclusion. Colorado law does not require the one-year rule to be specifically stated in the insurance policy.
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