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life insurance
- life insurance suicide clause
The suicide clause in life insurance policies
It's not a pleasant subject, but we need to discuss the suicide clause
found in most life insurance policies.
It ties in with an insurance concept called
adverse selection so let's take a more in-depth look at how the suicide
clause works in life insurance.
First, let's look at the definition of a standard suicide clause found in
most policies.
Essentially, the clause states that if the insured passes away by committing
suicide in the first two years of the policy, the life insurance company will
not pay the benefit according to the policy.
The two year window starts from the official
effective date of the life policy.
This is one more reason the effective date of your life insurance
policy is important.
You'll notice that the other similar clause, the contestability clause also
has a two year window as well.
It sounds a bit morbid and unfair to penalize someone after such a tragic
event.
Why do the life insurance companies have a suicide clause in their policies
to begin with?
This is where adverse selection and insurance plans come into play.
Adverse selection is when an insurance plan attracts excessive risk...more
than average for a given type of insurance.
If a person were in a state of complete despair and contemplating suicide,
he/she might take out a life insurance policy.
Without the suicide clause, life insurance policies might attract this
excessive risk and the
cost of life insurance for everyone would increase significantly for
everyone.
Keep in mind that life insurance inherently deals with large amounts of
money.
Potentially very large amounts of money.
The reason
term life insurance rates are so low is that the probability of triggering
the benefits is relatively low.
Any adverse selection such as that associated with suicide could
significantly impact rates by shifting the probability higher.
The protection against adverse selection differs from all other types of
death in that people have an inherent motivation to avoid triggering the
benefits.
Whether it's serious illness or severe accident, all people have a
motivation to avoid these.
Suicide is different.
Obviously, a person has to be in a very seriously depressed or altered state
of mind to even contemplate suicide but the fact that he/she causes the death
changes the entire equation.
The two year clause is there to offset this potential adverse selection from
blowing apart the life insurance product apart.
The two year window of the clause takes into account an impulsive
purchase of life insurance while contemplating suicide.
Other mental illness issues that may affect mortality rates (with or
without the risk of suicide) should be brought to light during the underwriting
process and especially during the questioning part of the paramedical exam.
As hard as the subject matter is, it's important to understand that you, the
life insurance shopper benefits from this clause by keeping term life rates
affordable.
Without this clause, you could be paying much more in premiums.
As a core component of insurance, a policy holder should not be able to
control or trigger benefits to their advantage.
This is the reason for the suicide clause in life insurance.
Either run a
term or no-medical life quote, talk to an expert at 800-710-0455, or
email us!
Again, there is absolutely no cost to you for our services. Call
800-710-0455 Today!