When it comes to the death of a loved one, no matter how prepared we think we are, it’s always a shock. When the death is by suicide, that shock is compounded. In the middle of such a whirlwind event, the business of life insurance may be the furthest thing from one’s mind, but it invariably must be dealt with.
We are all aware that buying life insurance to protect our loved ones in the event of our death is the responsible thing to do. After all, that is what life insurance provides: protection, most notably in the form of whole and term life insurance. When choosing a suitable policy, it is important to understand that most life insurance policies have certain clauses. These clauses are set up to protect the insurance companies from fraud, among other things.
The Suicide Clause
In the past, most insurance policies had suicide exclusions. This means that if the policyholder committed suicide, the insurance policy would not pay out. Insurance companies look to cover “unforeseen” events, and in the case of suicide, certainly the policyholder knows the death is imminent. To the beneficiary, however, it’s just as unexpected as any other event leading to the death of a loved one.
Over time, insurance companies altered their practices regarding suicide. Instead of flat out refusing to pay out, most policies have changed the suicide clause. This clause states that in order for an insurance policy to pay after a suicide, the policy must have been in effect for a specified amount of time, typically between one and two years. This way, the insurance company doesn’t look bad for denying someone’s grieving family, and it helps to deter those misguided souls who would take out a life insurance policy thinking that they can better provide for their families from the grave.
In some cases, even if the exclusionary period (also known as the contestable period) has passed, some insurers will pay out only part of the policy. Some insurers will pay only if it can be proven that the suicide was due to mental illness. It is important to note that even though most insurance policies will not pay out if the insured commits suicide during the exclusionary period, many will pay back any premiums that have been paid into the policy. Sometimes they will pay back premiums and interest.
While suicide is devastating to those left behind, it is important to be aware of what one’s insurance policy covers in such a devastating event. Make sure that you know the provisions of your policy when you purchase it so that nothing in it catches you or your loved ones off guard.