Life Insurance Payouts After A Suicide: What Families Need Know

Life insurance is designed to protect people from unforeseen events, rather than events that are planned. In the tragic event of a suicide, families may wonder if they will be able to claim on their loved one's insurance policy. The answer depends on the type of policy, the length of time the policy has been in place, and the specific terms within it. Many life insurance policies include a suicide clause, which typically states that if the policyholder dies by suicide within a certain period, usually the first two years, the insurer may deny the death benefit or only return the premiums paid. However, after this exclusion period, most life insurance policies do cover suicide, and beneficiaries are entitled to receive the full death benefit.

Suicide clauses

If the policyholder dies by suicide during the exclusion period, the insurance company may deny the death benefit or only refund the premiums paid. However, if the policyholder dies by suicide after the exclusion period, the policy's beneficiaries will receive the full death benefit.

It is important to note that changing a policy, such as adding coverage or converting a term policy into a whole-life policy, can reset the exclusion period. Additionally, different types of life insurance policies may have specific clauses and conditions that impact coverage in these circumstances.

Incontestability clauses

An incontestability clause is a provision in a life insurance policy that prevents the insurance company from denying a claim based on errors or omissions in the application after a specific period, usually two years. Once this period ends, the insurer cannot deny a claim unless there is evidence of fraud or misrepresentation. This clause provides added security for policyholders and their beneficiaries, as they know their coverage cannot be easily contested.

The incontestability clause is separate from the suicide clause, which states that the insurer may deny the death benefit or only return the premiums paid if the policyholder dies by suicide within one to two years of the policy being issued. The incontestability clause, on the other hand, focuses on the accuracy of the information provided when the policy was purchased.

It is important to note that the incontestability clause does not apply if the policyholder knowingly provided false information about their health history, including any previous mental health issues. In such cases, there is no time limit on how long the insurance company has to investigate and deny a claim.

Additionally, making changes to an existing life insurance policy or purchasing a new policy to replace existing coverage can reset the clock on the incontestability clause. Therefore, it is crucial to carefully review all the documents and seek help from a licensed expert if needed.

Death benefits

Life insurance policies are designed to help protect people from unforeseen events, rather than to pay a benefit for events that are planned. In the case of suicide, it is in no one's interest to create a financial incentive for someone to take their own life. This is why many life insurance policies include clauses that serve to discourage a person from taking out a life insurance policy with the sole intention of ending their life for the financial benefit of their surviving beneficiaries.

Suicide Clauses

Many life insurance policies contain a "suicide clause" or "suicide provision". Insurance companies typically won't pay a death benefit if the insured party dies by suicide within the first one to two years that the policy is in force. This period is commonly known as the "exclusion period". When the exclusion period ends, the policy's beneficiaries can receive a death benefit if the covered person dies by suicide after that date.

Incontestability Clause

An insurance policy's "incontestability clause" covers more than just suicide and is the main reason an insurance company might deny a claim following a suicide. This clause allows the life insurance company to deny a claim during the "contestability period", usually two years following the date the insurance policy's coverage begins. Once this contestability period passes, a life insurance claim becomes incontestable, which means it cannot be denied except for serious issues like fraud or misrepresentation.

Group Life Insurance

Group life insurance policies, often provided as part of an employee benefits package, usually include similar suicide clauses to those found in individual life insurance policies. If the suicide occurs within the exclusion period, the death benefit may not be paid. However, after this period, group life insurance generally does cover suicide.

Whole Life Insurance

With whole life policies, the beneficiaries might receive the plan's cash value even if the covered person dies during the exclusion period. When the exclusion period ends, the beneficiaries can receive the full death benefit and cash value.

What to do if your claim is denied

If your life insurance claim is denied, it's helpful to understand the insurer's reasoning and the steps you can take to challenge the decision. Typically, denials may occur if the death falls within the policy's suicide exclusion period, which can range from one to two years, depending on state regulations. To contest a denial, carefully review the insurer's denial letter and gather any relevant documentation, such as the insured's medical records or investigative reports. Consulting with an experienced attorney or insurance professional can further bolster your efforts to reverse a denial and secure the benefits owed to you.

Exclusion periods

The exclusion period typically lasts for the first one to two years after the policy is issued. During this time, if the policyholder dies by suicide, the insurer will not pay out the death benefit. Instead, they might refund the premiums paid up to that point. After the exclusion period ends, the policy generally covers suicide, and beneficiaries will receive the full death benefit.

The length of the exclusion period can vary depending on the state. While most states enforce a standard two-year period, some, like Missouri, Colorado, and North Dakota, have shorter one-year exclusion periods.

It's important to note that making changes to a policy, such as adding coverage or converting a term policy into a whole life policy, can reset the exclusion period.

Contestability periods

The contestability period is a clause in a life insurance policy that allows the insurer to deny or reduce the death benefit paid to the policy's beneficiaries. This period typically covers the first one to three years of the policy, during which the insurance company can investigate any deaths for evidence of undisclosed health conditions, discrepancies in the policy application, or other reasons for denial. The contestability period is separate from the suicide clause and focuses on the accuracy of the information provided when the policy was purchased.

During the contestability period, the insurer has the right to investigate death claims. This investigation may include reviewing the death certificate, police reports, autopsy findings, medical examiner reports, and the insured's medical records. The purpose of this investigation is to determine if the insured hid information about mental health conditions, risky behaviours, or substance use in their application.

If the insurer discovers that the insured did not disclose relevant information or provided false information, the claim may be denied, or the insurer may pay out a smaller amount. It is important to note that the insurance company has the burden of proof to show that the insured person died by suicide and/or lied on the application.

The contestability period also overlaps with the exclusion period, which is the first one to two years of the policy when the suicide clause is in effect. If the insured dies by suicide during the exclusion period, the beneficiary will likely not be able to claim the full death benefit. However, after the exclusion period ends, the insurance company will pay out the death benefit regardless of the cause of death.

In some cases, if the claim is denied, the beneficiary has the right to contest the insurer's decision. They can review the denial letter, gather relevant documentation, and understand their rights under state laws to challenge the decision. Consulting with an attorney or insurance professional can help bolster their efforts to secure the benefits owed.

It is important to carefully review all the documents and seek help from a licensed expert when purchasing a life insurance policy. Being thorough and accurate on the application can help avoid the denial of a claim.

Frequently asked questions