Do life insurance policies cover suicide, or do they include a suicide exclusion?
Well, yes and no. Most life insurance policies issued include a suicide exclusion (aka suicide clause or provision). This clause states that if an insured (person covered by a life insurance policy) commits suicide during an initial period of time immediately after their life insurance policy was issued, their death will not be covered.
In a life insurance policy, does a suicide clause allow coverage for death by suicide?
No, however, the suicide exclusion generally only applies for a certain period of time. The time period for which this exclusion can apply is actually limited by state law. In most states, the maximum period of time the suicide exclusion can apply is two years. However, in some states, the suicide clause can only apply for one year or 12 months.
How does the insurance company apply the suicide exclusion?
The suicide exclusion denies coverage for the insured’s death by suicide for a certain period of time which starts when the policy is issued. This is known as the exclusion period. After this period of time has elapsed, the death of the insured by suicide WOULD be covered.
Are you telling me death by suicide is covered by life insurance?
YES, after the expiration of the suicide exclusion.
Why do insurers (insurance companies) include the suicide provision in the life insurance policies they issue?
To prevent adverse selection. For example, say I am having the worst day in my entire life. I decide I have had it and am going to jump off the Golden Gate bridge and end my life. However, I stop by your office on the way to buy a life insurance policy from you. You sell me a $500K term life insurance policy. Shortly thereafter, I jump to my death. Is my death covered? NO!
Why? The policy includes a suicide exclusion. Adverse selection is when someone knows they will have a loss, and they buy insurance to cover that loss. The suicide exclusion prevents this from occurring.
What happens if the insured commits suicide during the suicide exclusion?
Usually, if this situation occurs, the insurance company (insurer) will refund any premiums paid to the beneficiary of the life insurance policy as a goodwill gesture.
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