According to the American Foundation for Suicide Prevention, suicide is the 10th leading cause of death for Americans. 39,518 suicides were reported in 2011 and some of them probably had life insurance.
There are actually two clauses in a life insurance policy that come into play when an insured takes their own life, so let's take a moment to review:
- The suicide clause usually states that if the insured person commits suicide within the first two policy years, the insurer reserves the right to refuse a payout of the death benefit to the beneficiary. They may, however, reimburse the beneficiary for all premium payments made.
- The incontestability clause may also come into play on a claim where the insured takes their own life. If the insured makes a "misstatement" on the policy application that can be linked to the cause of death, and the insured dies within the first two years, the insurer may decline the death claim.
- It's also important to know that whenever a life insurance policy is replaced, converted or reinstated, the "clock" on the suicide and incontestability clauses are reset and the two years starts over again.
When Heath Ledger died from an “accident, resulting from the abuse of prescribed medications,” just seven months after taking out a $10 million life insurance policy, it raised two questions: Was his death a suicide and did he have a drug habit that wasn't disclosed on the policy application? Rather than paying the claim immediately, the insurer investigated and the lawyers for Ledger's estate countered with a lawsuit. The case was ultimately settled for a lesser amount.
In our business, dealing with a death claim is one of the hardest and most emotional parts of the job. The aftershock of a suicide death brings with it even more emotional difficulty. On the bright side, according to the American Council of Life Insurers, 99% of all life insurance claims are paid in full regardless of the cause of death. It can also be satisfying to know that you played a significant part in making sure that the family's loss was protected.