Most people give very little thought to what is known as a “Suicide Clause” when first taking out a new life insurance policy. It’s difficult to think about situations like suicide in which policies won’t pay claims. The facts, however, are quite sobering, and show that it unfortunately happens more often than we’d like to think about.
According to the Center for Disease Control, suicide is the third-leading cause of death for people ages 10-24, and is the second-leading cause of death for people ages 25-34. Suicide is the 10th leading cause of death in the United States for all ages, and there is one suicide in this country once every 13 minutes.
It’s vital that you educate yourself on some of the situations in which life insurance policies will not pay out claims to heirs.
The Suicide Clause
Life insurance policies today include what is known as The Suicide Clause, which states that if an insured person commits suicide within the first two years of taking out a life insurance policy, death benefits will not be paid to designated beneficiaries. The suicide clause is a protection for the life insurance company against people taking out a large life insurance policy and then committing suicide to improve the financial position of their families. Although it is true that most people find this type of action unimaginable, sadly it does happen.
Many people who commit suicide may do so as a result of a major business failure, dealing with overwhelming financial debt, the loss of a well-paying career, becoming injured and unable to work or live life as was previously done, or any other reason. It is not uncommon for people who see their lives as basically “over” to still want to provide for their families, however. If the cause of death is indeed found to be suicide, it is most likely that insurance companies will not pay death benefit payments, and this often extends beyond the period of contestability, being effective throughout the life of the policy.
Periods of Contestability
Most life insurance policies also include a “period of contestability” clause, which gives the life insurance companies the option to investigate and challenge a claim, usually within the first two years in which the policy is in effect. Whether it involves suspicious death, withholding information, inaccurate information, or blatant fraud, an investigation may be started that could lead to payment of the death benefit being denied. Any kind of fraud found on the life insurance application will almost certainly result in a denial of payment. For example, if a policy holder lies about a history of mental illness, or under-reports an unhealthy habit such as smoking, the insurance company has the right to contest paying out their benefits to heirs in the event of their death.
Other Situations in which Insurance Policies May Not Pay
In addition, one of the provisions that might be included in policies are exclusions that apply to living abroad. Companies may exclude payment of the death benefit if a person dies while living outside of the country.
One of the easiest payment refusal reasons that can be avoided is the expiration of the term on a term life insurance policy. Although most people are aware of when their policy is ending, it can easily slip their minds, especially in situations when the policy is paid-up. If the policy expires and is not extended, coverage ends the day after the last day of the policy, and it cannot be extended after the fact.
In my 20+ years as an independent life and disability insurance broker, I have personally assisted thousands of clients with their life and disability insurance needs. Being independent, I represent many highly-rated insurance companies and, because I am not beholden to any one insurance company, my focus is to find the right company and policy for each individual client. I believe that when people shop for insurance (or anything else, for that matter) on the Internet, they are looking for a simple, non-intrusive, non-pressure method of doing so. I strive to treat my prospective clients with the utmost respect and I believe an educated prospect can make the right decision without sales pressure. Please feel free to contact me at your convenience.