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Understanding Suicide Exclusion As Basis For Denial Of Life Insurance

Last updated: April 12, 2023

Insurance companies are in the business of making money. They earn money by not having to pay out insurance benefits early into the life of the policy. It is for that reason that they have systems that protect them from losing money by denying claims and payouts to an insured’s beneficiaries under certain circumstances.

While it does not happen often, life insurance providers have the right to deny a pay out — especially if an insured’s death violates their policy agreement. One such example is the suicide clause, which gives providers the right to deny pay out under certain conditions if the insured died from suicide.

What Is The Suicide Clause?

The Legal Information Institute (LII) of Cornell Law School defines the suicide clause as the standard clause in life insurance policies that limits the pay out made to survivors of a policyholder who dies by suicide within a certain period after the purchase of the policy.

Generally speaking these clauses specify within two years, but a column published this year entitled Suicide and Life Insurance in the Journal of Psychiatric Practice found that there is little uniformity in the length of this clause, but found it to vary anywhere from 1 to 3 years.

Why Do Companies Believe That There Is A Need For The Suicide Clause?

There are two main reasons for the existence of the suicide clause: limiting risk and discouraging fraud.

The first reason refers to the need of the company to protect their income. Insurance companies generally need to limit their exposure to unnecessary risks. It is for that reason that they will also deny pay outs in the event of deaths due to dangerous activities or high-risk jobs.

The rate at which providers price their premiums is usually based on the statistically-derived estimates that an insured person will live, but suicide is not one of the factors that can be estimated.

Exclusions exist for factors that feature the following properties: All or some of the circumstances of their death are partially or entirely under the control of the individual; and the financial push to have their death benefits payable to beneficiaries.

Other exclusions that the providers consider is the participation in illegal activities. Examples include driving at excessive speeds, or the disregard for traffic laws. The legal aspect of a person’s death is even more evident in the second reason for the existence of the suicide clause.

The second reason for this exclusion focuses more on the companies wanting to protect themselves from defrauding. Studies have found and companies do understand that financial strain can be contributing factor to suicide.

It is a known fact that financial struggle is a major factor in the mental health and stability of a person. This understanding is so well established that the exclusion case has existed since the 19th century.

During times of economic crisis, this relationship is even more apparent. The financial crisis of 2008 featured the largest increase in suicide rates among policyholders. This heavily supports the idea that financial stability is a significant motivating factor.

There is still some debate as to whether or not this clause actually serves the second purpose. One study in Germany found that only a handful of people that had committed suicide during the exclusion period had done so with the purpose of acquiring benefits, while one in Japan found that regardless of the exclusion period, very few people had committed suicide were motivated by inurance payouts.

If you would like to know more about different types of insurance, visit DisabilityHelp’s article on How is SSI Back Pay Calculated?

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Chloe Powers
Chloe works with policymakers on behalf of Disability Help to support their work at a strategic level, ensuring the conditions are in place for creative individuals and organizations to grow, reach their potential and effect relevant, sustainable change.
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