No Life Insurance for Suicide
Suicide used to void all life insurance contracts. This meant no payout if the insured took their life despite the number of years they had paid premiums. Nowadays, this aspect is regulated by state legislation and many states require a statutory suicide clause to be included in the policy terms.
What is the statutory exclusion clause?
The statutory clause varies in each state. It provides that insurers must pay death benefits in the event of the insured’s suicide after a certain period of time has elapsed since purchasing the policy. This is the contestable period. Most states have a two year exclusion period. Some provide only one year.
The clause in the policy says something like this:
“If the insured shall commit suicide while sane or insane within two years from the date of issue hereof, the liability of the company under this policy shall be limited to the premiums actually paid hereon less any indebtedness”
Generally, the insurer will refund premiums paid if suicide takes place within the exclusion period. Interest is not usually returned. If the suicide occurs after the exclusion period, then the death benefit will be distributed, provided no other exclusions apply (such as premiums not having been paid).
Why is there an exclusion period?
It is not the purpose of life insurance to provide benefits for suicide. However, the states have recognized that persons can be mentally healthy when buying a policy, continue to pay premiums for years and later become depressed. The exclusion of suicide has been limited so that people in these situations don’t end up being penalized by losing their end of the contract.
The states have had to balance this approach against encouraging suicide by allowing insurance proceeds to be provided. This is why generally a two year limitation applies. It is deemed that keeping up the resolve to die for two years is a rare occurrence, even when considerable money is at stake. Most people will end their life before the exclusion period is up. Others may reappraise their circumstances.
The State Insurance Law
Here are some examples of legislation requiring the statutory exclusion clause:
California – s11066(h) of the Insurance Code:
“The certificate shall…. contain in substance
the standard provisions listed below…..(h) A provision that….the certificate shall be incontestable on the ground of suicide after it has been in force during the lifetime of the insured for a period of two years from date of issue….
Florida – s627.455 Insurance Statute, Title XXXVII, Chapter 627
“Incontestability.–Every insurance contract shall provide that the policy shall be incontestable after it has been in force during the lifetime of the insured for a period of 2 years from its date of issue except for nonpayment of premiums ….”
Pennsylvania – s73.115 Benefit Exclusions – Title 31 of the Code
“(1) The following exclusions may also be contained in a life insurance plan or a life insurance with TPD benefit plan: …. (i)Death due to suicide within 1 year of the effective date of coverage.”
Not all states have the same disclosure and exclusion provisions. However, many require life policies to become incontestable after a certain period of time. This includes the case of suicide.
Suicide is not covered by Accidental Death policies. These provide death benefits in limited circumstances where death is caused by an accident.