Life Insurance

A Guide to Life Insurance Payouts in Suicide Cases



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 Life insurance is not designed to cover suicide, but on specific occasions, insurers would distribute death benefits in cases where the insured commits suicide. With the suicide exclusion clause an insurer would not be obligated to pay if the insured dies by suicide. This is because the clause exempts the employer specifically. However, in some insurance contracts, a suicide exclusion clause does not exist. In such contracts, there is a two-year incontestability provision that applies to suicide.

• Anti-selection and suicide

Insurers do not usually provide coverage for suicide because it might increase anti-selection. This refers to the tendency of higher-risk individuals to seek insurance. The death of the insured person should occur by chance and be reasonably unexpected (everyone will die, but the day of death should be unknown). Suicide undermines these two principles of insurable risks.

 • Payouts in suicide cases

Where suicide exclusion clauses are not part of the insurance contract, the insurer would only refund premiums/ contributions made if the insured commits suicide within the first two years. The reference point is the issue date of the life policy. Once two years have passed since the issue date of the policy, the insurer would pay the benefits to the named beneficiary or estate.

Insurance is notorious for being somewhat complicated – particularly with several clauses included. In the case of suicide, insurers facilitate payment because a person who purchases a policy with suicide in mind would not likely wait two years before committing the act.

Optional supplementary benefits, such as accidental death, cannot cover suicide by definition. This is because suicide is intentional. In addition, insurers do not pay benefits to the beneficiary if the beneficiary is responsible for the death of the insured (by euthanasia or murder). Critical illness benefits and terminal bonuses can be paid someone who is terminally ill. In the event of suicide, any critical/ terminal illness benefits paid to the insured under the terms of contract would not be reneged.

During the underwriting process, underwriters typically require information about mental disorders and depression history. This is even more important when the insurance contract does not include the relevant exclusion clause. It is somewhat misleading to suggest that life insurance deliberately protects against the risk of suicide. In the absence of an exclusionary clause, death by suicide after two years of the issue date of the policy would be covered. The provision that applies to suicide performs the same role as the incontestability clause in insurance contracts.

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