Life insurance policies typically include a suicide clause, which states that if the policyholder dies by suicide within a certain period after the policy is issued, the insurer may deny the death benefit or only return the premiums paid. This period is usually the first two years, but can be as short as one year in some states. After this exclusion period, most life insurance policies do cover suicide, and beneficiaries are entitled to receive the full death benefit.
Group life insurance, such as that provided by an employer, treats suicide differently. These policies generally do not include a suicide clause, so the policy can pay out for suicidal death. However, supplemental life insurance purchased through an employer usually has a standard suicide clause and contestability period.
Characteristics | Values |
---|---|
Type of life insurance | Individual life insurance, group life insurance, military life insurance |
Suicide clause | Typically included in individual life insurance policies, lasting 1-3 years |
Contestability period | Usually 2 years, during which the insurer can deny a claim for various reasons |
Incontestability clause | Comes into effect after the contestability period; prevents the insurer from denying a claim due to errors or omissions in the application |
Coverage | If the policy was purchased at least 2-3 years before the insured person died, suicide is usually covered |
Claim denial | If the insured person didn't disclose information such as risky behaviours or mental health issues, the claim can be denied |
Group life insurance | If entirely paid for by an employer, group life insurance will generally cover suicide with no restrictions during the first 2 years |
Supplemental life insurance | If purchased from an employer, it will likely include a suicide clause or contestability period |
What You'll Learn
Group life insurance through an employer
Group life insurance is offered by an employer or another large-scale entity, such as an association or labor organization, to its workers or members. It is a common employee benefit that provides a death benefit to the insured's beneficiaries if they die while part of the organization.
Group life insurance is fairly inexpensive and may even be free, as many members pay into the group policy. The first $50,000 of group term life insurance coverage is tax-free to the employee. The cost of any coverage over $50,000 that is paid for by an employer must be recognized as a taxable benefit and reported on the employee's W-2 form as income.
Group life insurance policies are typically for term life insurance, which is renewable each year. This is in contrast to whole life insurance, which is permanent, has higher premiums and death benefits, and is the most popular type of life insurance.
Group life insurance policies do not require individuals to complete a medical exam or underwriting. This means that qualifying for group policies is easy, with coverage guaranteed to all group members.
However, the low cost and convenience of group life insurance come with the drawback of basic coverage, which may not fulfill the needs of policyholders. Typical amounts are $20,000, $50,000, or one or two times the insured's annual salary. Therefore, it is recommended that group life insurance be supplemented with a separate individual policy.
Another disadvantage is that the employer controls the policy, meaning your premiums can increase based on decisions made by your employer. If an organization decides to terminate group life insurance, or an individual switches jobs, the coverage usually stops. However, the former employee has the option to continue coverage at the individual level, which means the policy is converted from a group life policy to an individual one, resulting in higher premiums.
Some employers give employees the option to buy a limited amount of group coverage for spouses and children.
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Suicide clauses
The suicide clause is intended to prevent individuals from taking out a life insurance policy with the intention of ending their lives soon after, thereby ensuring that their loved ones receive financial benefits. During this exclusion period, if the policyholder dies by suicide, the insurer may deny the death benefit and only return the premiums paid. After the exclusion period, the life insurance policy will generally cover suicide, and the beneficiaries will receive the full death benefit.
It is important to note that different types of life insurance policies may have specific clauses and conditions that impact coverage. For example, 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. On the other hand, military life insurance policies typically do not contain a suicide clause, and thus they cover suicide with no restrictions during the first two years.
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Contestability period
A contestability period is a clause in a life insurance policy that allows the insurer to deny a claim if the insured dies during the period, typically the first two years, and the insurer finds undisclosed health conditions or other discrepancies in the policy's application. The period is separate from the suicide clause and allows the insurer to investigate the circumstances of the death.
The contestability period is designed to protect insurance companies from financial risk and prevent fraud. It gives insurance companies the ability to void coverage in certain cases, such as inaccurate information on the application. The period allows insurers to investigate claims and deny coverage if the policyholder intentionally caused their own death.
If the insured dies during the contestability period and it is determined to be a suicide, the beneficiary will not receive the policy's death benefit. However, they may receive the sum of the premiums paid. If a cash value life insurance policy had money borrowed against it, the amount of the loan would be deducted from the payout the beneficiary would receive.
The contestability period restarts if the insured switches life insurance policies, even if they purchase the new policy from the same company. However, this is not generally the case if the policy is only converted.
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Incontestability clause
An incontestability clause is a provision in a life or disability insurance policy that prevents the insurance company from canceling the policy based on misstatements in the policy application after the insurance has been in effect for a certain period of time, usually two years. This clause is one of the strongest protections for a policyholder or beneficiary. While many other rules for insurance seem to favour the companies, this rule is notably and strongly on the side of the consumer.
How an Incontestability Clause Works
The incontestability clause in life insurance policies is one of the strongest protections for a policyholder or beneficiary. While many other legal rules for insurance favour the insurance companies, this rule is notably and strongly on the side of the consumer.
Conventional rules for contracts stipulate that if false or incomplete information was provided by one party when making the contract, then the second party has the right to void, or cancel, the agreement. The incontestability clause forbids insurance companies from doing this.
History of the Incontestability Clause
Reputable insurance companies originally introduced the incontestability clause in the late 1800s to build consumer trust. By promising to pay full benefits after the policy had been in place for two years (even if there were errors in the original application), these insurance companies tried to clean up the industry’s image. The effort was successful, and early in the 20th century, state governments began to pass laws requiring the incontestability clause.
Exceptions to the Incontestability Clause
There are three common exceptions to the incontestability clause:
- In most states, if the insured person misstates their age or gender when applying for life insurance, the insurance company may not void the policy, but it can adjust death benefits to reflect the policyholder’s true age.
- Some states allow insurance companies to include a provision stating that a one- or two-year contestability period must be completed within the lifetime of the insured. In this scenario, a life insurance company can refuse to pay benefits if a policyholder was so unwell when they applied for coverage that they died before the contestability period was over.
- Some states also allow the insurance company to void a policy if deliberate fraud is proven.
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Exclusion period
The exclusion period for life insurance policies typically lasts for two years, though in some states, such as Colorado, Missouri, and North Dakota, it is one year. During this time, known as the contestability period, the insurance company can contest or deny a claim for various reasons. If the insured person dies by suicide during the exclusion period, the policy's beneficiaries will not receive a payout. This is known as the suicide clause.
The suicide clause is a standard clause in life insurance policies that prevents the insurer from paying out to beneficiaries if the insured person dies by suicide within a certain period of taking out the policy. This is usually within the first two years, though it can be between one and three years, depending on the insurer. The clause is designed to prevent someone from taking out a policy with the intention of ending their life, leaving financial benefits for their loved ones.
The contestability period allows the insurer to deny a claim if the insured person dies during this time and the insurer finds undisclosed health conditions or other discrepancies in the policy application. The contestability period and suicide clause are separate, but both must expire before the policy will pay out for suicidal death.
Supplemental life insurance purchased through an employer usually has a standard suicide clause and contestability period. However, group life insurance through an employer or organisation generally treats suicide differently, and these policies typically do not include a suicide clause, so they will pay out for suicidal death.
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Frequently asked questions
Group life insurance policies, which are often provided by employers, typically include a suicide clause that prevents a payout if the insured person dies by suicide within the first one to two years of the policy. However, if the employer fully pays for the group life insurance policy, it will generally cover suicide with no restrictions during the first two years.
A suicide clause is a provision in a life insurance policy that limits the payment of benefits in the event of a suicide. It is meant to prevent individuals from purchasing a policy with the intention of taking their lives soon after to benefit their loved ones financially.
Yes, there are a couple of exceptions. Military life insurance policies, such as those offered by Veterans' Group Life Insurance (VGLI) and Servicemembers' Group Life Insurance (SGLI), typically pay out the death benefit regardless of the cause of death, including suicide. Additionally, if the exclusion period of one to two years has passed since the policy began, most life insurance policies, including employer-provided ones, will cover suicidal death.
The exclusion period for suicide in life insurance policies is typically one to two years, depending on the state and the insurer. During this time, if the insured person dies by suicide, the beneficiaries may receive a return of the premiums paid instead of the full death benefit.