Does Suicide Nullify Life Insurance?
Life insurance normally covers death from any cause. However, life insurance companies place certain restrictions on death-benefit payouts. These restrictions are designed to protect the insurer from catastrophic losses resulting from criminal activity or those looking for an easy way to escape financial troubles. One such restriction placed on life insurance is a suicide exclusion.
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Significance
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A suicide exclusion is a provision contained in a life insurance contract that limits the payout of the policy. If you commit suicide within the first two years of the policy, the insurance company can deny your claim. This provision is contained in all life insurance policies. The provision only lasts two years, however, so a person committing suicide beyond the two-year exclusion is fully insured, and the policy will pay out a benefit to his heirs.
Benefit
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The insurance company benefits by including a suicide exclusion since this exception protects the insurer from excessive claims arising from suicide, such as those looking for an easy or quick solution for financial problems who purchase a policy and kill themselves so that their families receive money they need. This exclusion specifically prevents this payout.
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Effect
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The policy is canceled when policyholders commit suicide within the first two years of coverage. The premiums they've paid are normally returned to the beneficiaries listed on the policy contract. The insurer does not keep this money. However, no interest is paid on this money and no portion of the death benefit is paid out.
Consideration
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A suicide does not necessarily mean that your policy will be canceled. However, if your policy contains a strict suicide clause exempting payment within the first two years, your family will not receive a death benefit payment. Each life insurance policy is different, however, and may contain clauses that permit the payment of a death benefit depending on the nature of the suicide and whether this was the intent from the start of the policy. The insurer would do a full investigation if such a case arose.
Life insurance companies may also cancel your policy if you make a material misstatement of fact. For example, if you lie about your age or tell the insurer you do not smoke when you do, the insurance company could cancel your policy and, if so, would issue a refund of all premiums paid. Alternatively, the insurer may sue your beneficiaries if the insurer does not discover the misstatement of fact until after your death. This would result in your beneficiaries having to return the death-benefit proceeds. If the insurer happens to discover any fraud committed on your part during your lifetime, the insurer also has the option to prosecute you.
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