More on Life Insurance
More on Life Insurance
Life insurance provides a financial safety net that can last for decades. Some insurance shoppers worry that an insurance company won’t pay the death benefit if the policyholder dies. This is typically unfounded, as life insurance policies almost always pay out; there are even protections in place if an insurer goes bankrupt.
But there are rare scenarios where life insurance won’t pay out. Suicide is the tenth leading cause of death overall in the United States, according to the Centers for Disease Control and Prevention (CDC) WISQARS Leading Causes of Death Reports in 2018. And depending on the terms of your policy’s suicide clause, suicide may not be covered by life insurance. But this clause is usually only in effect during the first few years of the policy. After the provisional clause of a policy expires, a life insurance policy will cover suicide.
Life insurance typically covers suicide
A policy's suicide clause outlines situations in which the death benefit won't be paid, usually within the first two years of the policy
Mental health, including a history of depression or anxiety, can affect life insurance premium rates
The life insurance suicide clause is a provision that’s in place during the first two years of the policy. Normally, when the policyholder dies, the death benefit is paid to the beneficiaries as a tax-free, lump-sum amount (or, sometimes, a series of payments) and that’s the end of the transaction. However, if the death is a result of self-inflicted injury within the first two years the policy is in force, the insurer can refuse to pay.
This provision prevents an applicant from getting a life insurance policy and taking their own life immediately afterward so their loved ones can receive the death benefit.
This presents some complicated scenarios. Is a drug overdose covered by life insurance? It may be, if it is deemed to be accidental rather than deliberate. It’s the burden of the insurer to prove a death was a suicide.
Note that after the first two years, the policy will pay out for suicidal death (unless there is another provision or exclusion specifically outlined in the policy that forbids it).
During the underwriting process, a life insurance company will look at an applicant’s health and medical history to learn how risky they will be to insure. In other words, how likely the applicant is to die while covered. This includes not only physical health but mental health as well.
Depression is linked to an increased risk of suicide, according to the National Institute of Mental Health. It’s important to disclose your mental health history during the application process. Answering basic questions, like when you were first diagnosed and the severity of your depression, along with being able to show evidence of treatment through medication and/or therapy, will keep you eligible for competitive rates.
The relationship between mental health and life insurance can be complicated and each application and health scenario is looked at on a case-by-case basis. But to avoid life insurance fraud (which can prevent your loved ones from receiving a death benefit) you should never lie or withhold information from your life insurance company. Always disclose your mental health history, or the payout can be denied during the contestability period.
Doctor-assisted suicide, commonly known as “death with dignity” or “right-to-die” situations, involves people diagnosed with a terminal illness who choose to end their lives rather than suffer through treatment and/or a diminished quality of life.
These cases would fall under the same clauses as other instances of suicide: covered, but not during the first two years of the policy. According to Death with Dignity, only eight states and Washington D.C. currently have laws protecting the right to assisted suicide: California, Colorado, District of Columbia, Hawaii, Maine, New Jersey, Oregon, Vermont, and Washington.
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Other than suicide cases, life insurance companies may not pay out during the contestability period.
The contestability period is the one- to two-year period after a policy first goes into effect. During this time, a life insurance company can contest the death benefit payout. Insurance companies can investigate a death and decide if the beneficiary has a legitimate claim, in order to prevent fraud. The contestability period discourages people from lying on their application and helps keep life insurance companies in business and providing coverage.
During the underwriting process, a life insurance applicant is asked a series of health and lifestyle-related questions that help the insurer set the premiums. Unhealthy people, older individuals, or people with a history of health issues, are typically charged higher rates than younger, healthier people. And even though companies will gather more health information during the medical exam, applicants can lie about some aspects of their health history.
For example, an applicant could lie and say they don’t have a history of smoking to avoid a costly Smoker classification. But if they die a year into their policy from lung cancer or some other lung-related affliction, the insurance company can investigate the death, determine it was smoking-related, and decline to pay the death benefit because of application fraud.
There are a few important things to note:
Companies can’t choose to simply not pay out during the contestability period; they must have cause and evidence of fraud. This information can be gathered through autopsies and other investigative measures.
The contestability period only lasts for the first two years the policy is in force, but it can be reset if the policy lapses and the policyholder has to have it reinstated.
The suicide clause and the contestability period are not the same. Though the periods of time almost always overlap, and even the circumstances may overlap (for example, if suicide is a result of an undisclosed pre-existing medical condition), the suicide clause specifically deals with self-harm while the contestability period is concerned with fraud.
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The inverse of the contestability period is the incontestability clause. This essentially says that, after the contestability period has ended, a company cannot avoid paying out life insurance benefits by contesting misstatements made on an application.
There are some exceptions to the incontestability clause — some errors like age or gender could result in coverage being recalculated rather than canceled — but overall the clause is there to protect consumers from having their policy canceled years into it because of an application mistake or a change in medical circumstances.
→ If you or someone you know is in crisis, you can call the National Suicide Prevention Lifeline at 1-800-273-8255, or text the Crisis Text Line (text HELLO to 741741). Both services are free and available 24 hours a day, seven days a week. The deaf and hard of hearing can contact the Lifeline via TTY at 1-800-799-4889. All calls are confidential.
Life insurance pays out the death benefit to your beneficiaries for most causes of death. Illness, suicide after the first two years, most accidents, and death by natural causes are all covered by life insurance.
Depression or other mental health conditions can lead to higher life insurance premium rates. If your depression is managed with medications or therapy, or if it does not affect your day-to-day life significantly, you may qualify for standard or preferred rates.
Typically, a suicide clause states that the policy will not pay out a death benefit for suicide within the first two years that the policy is active. The exact time period varies by insurer, and once it passes, a life insurance company pays out a death benefit in cases of suicide.
Rebecca Shoenthal is a life insurance editor at Policygenius in New York City, specializing in buying life insurance and the ins and outs of life insurance ownership. She's edited business books by the country’s top academics, politicians, journalists, thought leaders and CEOs, including venture capitalist John Doerr’s Measure What Matters, entrepreneur Scott Belsky's The Messy Middle, NYU Stern professor Scott Galloway's The Four, and technologist John Maeda's How to Speak Machine.
Rebecca has a B.A. in Media and Journalism from the University of North Carolina at Chapel Hill.
Amanda Shih is a life insurance editor at Policygenius in New York City. She has a passion for making complex topics relatable and understandable, and has been writing about insurance since 2017 with specialities in life insurance cost and policy types. She's previously written for Jetty and LegalZoom.
Amanda has a B.A. in literature and communication from New York University.