Life Insurance And Suicide
Insurance is supposed to provide peace of mind in the event of an unforeseen tragedy. But what happens if that tragedy is something you planned and carried out yourself? Depending on the scenario, suicide may not be covered. You may be surprised to learn that life insurance does not always cover suicides. In fact, in some cases, suicide can even lead to the policy being voided. This can leave loved ones who depended on the policy financially vulnerable in the event of a death by suicide. It’s important to understand your life insurance policy and its limitations.
When suicide is mentioned in relation to life insurance, it is usually a red flag. Introducing the suicide clause. This clause is included in most life insurance policies and stipulates that the policy will not pay out if the policyholder dies by suicide within a certain period of time after the policy is taken out, typically one or two years. However, after this period has elapsed, suicide is generally covered in the same way as any other cause of death. As a result, it is important to be aware of the suicide clause when taking out a life insurance policy. This can have a significant impact on whether or not your beneficiaries will receive a payout.
PURPOSE OF THE SUICIDE CLAUSE
The purpose of this clause is to protect the life insurance companies from paying out benefits to families who have pre-planned intentions. This allows insurers to better manage risk. While suicide rates are relatively low, they are still a significant financial risk for life insurance companies. In addition, the suicide clause also serves to deter people from taking out life insurance policies with the intent of committing suicide. The suicide clause helps to discourage this type of behavior. No one should ever be purchasing a life insurance policy for the purpose of a get rich quick scheme for their family.
WHEN DOES A DEATH BENEFIT PAY OUT FOR A SUICIDE?
Life insurance policies have a clause that states that the death benefit will not be paid if the policyholder commits suicide within a certain period of time after the policy is issued. For example, many policies have a two-year suicide exclusion, which means that if the policyholder dies by suicide within two years of taking out the policy, the death benefit will not be paid. However, after this exclusion period has passed, the death benefit will be paid regardless of how the policyholder died. As a result, it is important to know when your life insurance policy’s suicide exclusion period expires. Otherwise, your family may not be able to collect on the death benefit if you die by suicide.
DOES TERM LIFE AND WHOLE LIFE COVER SUICIDE
That depends. Term life and whole life can cover a suicidal death in many cases. However, in order for this to take affect the suicide clause or the incontestability period must expire. The incontestability period is often the initial two-year period of the policy. If a policy holder passes away within that time period, an insurer can challenge paying out the claim. One way for insurers to contest or deny paying out a claim is if the cause of death was a suicide. Now not every insurance company has a suicide clause in place, but majority of the insurers will have this in their policy to avoid risk. Without the clause, insurance companies run the risk of bankruptcy.