A life insurance policy is bought by a person to provide financial stability to his family in case of an unforeseen occurrence. The insurer makes a contract with the insured to provide a sum assured as a death benefit to the nominee in the event of an unexpected death of the insured. Even though insurance companies are expected to honour any and every claim that arises due to the death of the policyholder, it is also important for the companies to ensure only genuine claims are honoured. They are in the business of insurance for profits and to safeguard their business interests they are allowed to form certain rules under which they can reject the claim. These are called exclusions.
Suicide Clause is one of the top most exclusion and there are strict norms followed by the insurers when death happens due to a suicide.
The suicide clause as mentioned in the policy documents is as follows:
“If the life assured commits suicide within one year from the date of commencement of risk or date of revival if revived, whether sane or insane at that time, the policy will be void and no claim will be payable.”
It is to be noted that certain companies keep this stated time period up to a maximum of 2 years in some cases. So any claim due to suicide within this time period will be rejected without any explanations offered. However, if suicide happens post this period of one/two years, then the death claims will be payable as per the policy terms and will be considered as death benefits.
Reason Why is it Excluded
The fundamental reason for the suicide being regarded as exclusion is to eliminate the presence of Moral Hazard in the case. Moral hazard means that there is a wrong intention of policyholder to take insurance and maybe he or she wants to make profit out the insurance policy. Some customers might try to protect their families by purchasing insurance plan and then committing suicide. Be aware that doing this will not help in any manner and the losses will be catastrophic in terms of a life lost while gaining no material benefit.
Covering suicide without waiting period would instigate people to look life insurance policy as a lucrative way to get financial incentives for their family and here the loss of life is planned! This defeats the entire concept of insurance.
Few Insurers do Pay Partly for Death Due to Suicide
A few insurance companies have come up with certain term plans that don’t offer death benefits, but offer to pay back a part of or the complete premium paid till the time of death.
- For example Aegon Life Insurance iTerm Plan offers to pay back 80% of the premium paid even if suicide is committed within one year of the commencement of the policy or renewal of the policy provided the policy is in force.
- A few other companies like Bharti AXA General Insurance, Future Generali etc. also offer the same terms to the nominee of the policyholder in case of death.
- Max Life Insurance, on the other hand, offers to refund total premiums paid.
There are certain exemptions to the rule, though, so that the nominee of the insured doesn’t suffer.
In the Event of Third Party
The nominee of the insured suffers financial losses if suicide is committed within one/two years of the policy, but if a third party is involved in the policy, the insurer will take care of such obligations. For example, if the policy holder took a home loan of Rs. 20 lakhs against his insurance policy of Rs. 25 lakhs, then in the case of suicide, the lender also possesses the rights over the policy proceeds to recover the debt through policy assignment. Assignment of policy means that the lender also possesses rights (to the extent of debt) in the policy proceeds in the event of death of the borrower. This way the financial interests of the third party are secured even if suicide is committed within the excluded period of time.
In the Event of Group Life Insurance
If the insured is part of a group insurance policy by the employer, the suicide clause will not be applicable. This is because in group insurance the life covered is that of the master policyholder, that is the employer/organization/legal entity instead of an individual. Hence the death benefits will be payable to the nominee at the time of death of the individual.
Committing suicide is not an answer to any problem and the insurance companies try on their part to propagate this message by informing the insured that their financial planning might go for a toss if they try to take such an extreme step.
Be aware and act smartly!