While there are no easy answers when a loved one dies by suicide, one question you may have is whether your life insurance policy is still valid. In some cases, yes, beneficiaries can still receive a life insurance payout if the policyholder dies by suicide. however, there are limitations. bankrate looks at how life insurance policies work in these cases to better help you navigate this difficult time.
When does life insurance cover suicide?
Life insurance covers the death by suicide of the policy holder in many cases. however, some life insurance policies include contest and suicide clauses that must expire before a suicide death is covered. Typically for a period of two to three years, exclusion clauses set forth stipulations around death benefit payments. however, once these riders expire, beneficiaries can receive the death benefit left to them by the policyholder.
what is a suicide clause in life insurance?
A suicide clause is typically in place for two to three years after a life insurance policy goes into effect. during this time period, the clause provides for a policyholder’s death investigation assignment.
Insurers who prove that the policyholder committed suicide during this period, or if the police or medical examiner determines that the policyholder’s death was a suicide, the insurer may deny the beneficiary’s claim to the benefit for life insurance death.
what is an incontestable clause in life insurance?
The contestability clause takes into account the circumstances surrounding the policyholder’s death and typically applies to the first two years of a policy. During this time period, the contract allows insurers to deny claims for a variety of reasons, including suicide or the performance of an illegal act.
The non-disputability clause takes effect once the non-disputability clause expires. once the undisputed takes over, only serious violations, such as fraud or misrepresentations, are considered grounds for claim denial. The types of violations that can lead to a claim denial will vary from company to company.
In particular, the exclusion period resets when changes are made to the life insurance policy, even if the insurer does not change. For example, converting two term life insurance policies into a single policy with a higher payout value triggers the start of another two- to three-year exclusion period.
However, keeping the same death benefit and converting a term life insurance policy to a whole life insurance policy should not reset the exclusion period.
Provided the contestability and suicide clauses have expired, and there is no evidence of misrepresentation or fraud, the suicide should be covered and the death benefit paid to the beneficiary.
How does group life insurance treat suicide?
Group life insurance, the type of coverage provided as a workplace benefit, generally pays a death benefit on suicide claims without the two-year contestability restriction.
In cases of a private purchase of supplemental life insurance, which is typically offered through an employer, professional organization or other entity, a contest clause is likely to apply. Contractually speaking, insurers investigate claims and have wide latitude to deny a claim within the first two years of the policy’s effective date.
how do suicide life insurance payouts work?
After the exclusion period, if the policyholder dies by suicide, the policy pays a death benefit to the beneficiary just as it would for death from disease or any other insurable cause.
Suicide of the policyholder during the exclusion period does not provide payment of the death benefit. Very often, however, life insurers pay the amount of premiums paid on the policy less any premiums due before the policyholder’s death. Insurers also subtract loan amounts from any death benefit payments on permanent policies.
what do you do if your life insurance claim is denied?
Life insurers often defer to the police or medical examiners to determine the cause of death of the policy holder. however, if an insurer suspects that the insured died by suicide or another uninsurable cause, she has the right to contest or deny claims during the exclusion period.
In these cases, insurers have the burden of proof to prove that the policyholder died by suicide. the company may undertake its own investigation and consider relevant information:
- autopsy report
- death certificate
- drug or alcohol abuse
- evidence of illegal behavior
- family members and friends or witness testimony
- health and medication history, including psychiatric records
- possible suicide note
- gun purchases
Policy beneficiaries who disagree with an investigation finding of suicide during the contest period, and who receive a claim denial for an insurable cause of death, may contest the decision, quite possibly with legal action . while murky scenarios like a prescription drug overdose death leave room for debate about insurable and uninsurable causes of death, challenging a denial opens the door to the possibility of receiving some level of payment.
avoid application misrepresentation
Suppose you have a pre-existing medical condition that you believe will affect your ability to purchase a life insurance policy. Instead of disclosing this information to your life insurance company, you keep it to yourself and the doctor doesn’t discover it during your pre-screening medical exam. Although unlikely, the company also does not find your condition by reviewing your past medical history to determine your insurability. as such, they issue your life insurance policy.
later, you will die during the contest period of your policy. If your life insurance company finds this pre-existing condition during their investigation, they may deny your claim. Your cause of death doesn’t have to be from the hidden condition, but because it wasn’t disclosed, it can still be grounds for denial due to fraud.
When applying for a life insurance policy, you should be honest and upfront about your medical history. if you don’t, you run a high risk of having your claim denied in the future.
check state laws
Insurance regulations in some states provide protection to beneficiaries. Check applicable state laws about contestability of life insurance and determine rules about exclusion periods. States also place various restrictions around contract challenges, limiting the window to overturn a denial. additionally, some states restrict the application of new suicide clauses in converted policies.