A life insurance policy is usually taken by someone to make sure that their family remains financially secure after the policyholder dies. But, what if the policyholder commits suicide? Will the policy’s nominee get the sum assured? Committing suicide may not be considered as an event of uncertainty, so will life insurance cover it?
In actuality, however, it all depends on the policy terms. Generally, it may not be covered in the initial years, but suicide is usually covered after 12 months from the date of the purchase of the policy.
In such a scenario, during the policy term (post 12 months of issuance), the policy will pay the family (whosoever is the nominee) the death benefit (the sum assured) in case the policyholder commits suicide. However, you must check the policy terms and conditions carefully to see if there is any provision excluding suicide coverage in the policy. In this case, the nominee will not receive the sum assured.
Why the insurer provides suicidal death cover?
Mahavir Chopra, Director – Health, Life & Strategic Initiatives, Coverfox.com said that the sole reason for providing suicidal death cover is to help the emotionally devasted family members by paying them back some amount (as per the clauses) out of the premium paid by the departed family member. “As the reason for committing suicide by the insured person (policyholder) could be debt or emotional distress or anything else, the loss weighs down on the shoulders of the family members and any financial support in such case is always welcome,” he said.
Why “suicidal death cover” is applicable after one year?
Sunil Sharma, Appointed Actuary and CRO, Kotak Mahindra Life Insurance, said in order to control the moral hazard risk, insurance policies have suicide exclusion. In general, the clause is such that in case the life insured (policyholder) commits suicide within 12 months from the date of issue of the policy or from date of any major revivals, the claims (sum assured) are not payable by the insurer. “Hence, the suicide exclusion is applicable in the initial period of one year and thereafter such deaths are covered under the policy,” he added.
Most life insurance plans provide suicidal death cover after a period of one year. However, if the policyholder commits suicide before a period of one year then his/her family (whosoever is the nominee) may not be able to avail the benefit of getting the full sum assured. Rather, the insurer may just provide the family (whosoever is the nominee) the benefit equals to a certain percentage of the premium paid during the policy term by the policyholder.
Chopra said that the restriction on paying the sum assured in suicide cases before the expiry of 12 months helps insurance companies in preventing insurance fraud. There can be instances where the insured person (policyholder) has run up a huge debt and wants to get out of this situation by buying life insurance first and then committing suicide. “It is thought that the duration of 12 months is enough to bring the insured person out of the mindset of taking such a dire step,” he added.
Usual exclusions of suicide in a life insurance policy
Let us take LIC’s Jeevan Tarun life insurance policy as an example. As per the policy wording: (Applicable for a policyholder who bought a policy after January 1, 2014)
1. If the life assured (whether sane or insane) commits suicide at any time within 12 months from the date of commencement of risk, the insurer will not pay any claim under the policy except for 80 percent of the premiums paid excluding extra premium, if any, provided the policy is in force.
This clause will not be applicable in case the age at entry of the life assured is below 8 years, according to the conditions mentioned in the Jeevan Tarun LIC policy.
2. If the policyholder (whether sane or insane) commits suicide within 12 months/1 year from date of revival, an amount which is higher of 80 percent of the premiums paid till the date of death (excluding extra premium, if any,) or the surrender value shall be payable.
The insurer will not entertain any other claim under this policy. This clause will not be applicable:
a) In case the age of the policyholder is below 8 years at the time of revival; and
b) For a policy which has lapsed without acquiring paid-up value. Nothing will be payable under such policies.
The policy wordings are similar in most life insurance policies.
Have you purchased the policy before January 1, 2014?
Chopra said the suicide clause has changed. He explains, before January 2014 the clause read as, “If the life assured commits suicide, whether sane or insane at that time, within 12 months from the date of commencement of risk or date of revival if revived, the policy will become invalid and no claim will be payable.”
However, after the January 2014 guidelines, the new clause reads as, “In case of death due to suicide within 12 months; From the date of inception of the policy, the nominee or beneficiary shall be entitled to at least 80 percent of the premiums paid, provided the policy is in force.”
From the date of revival of the policy, your nominee or beneficiary will be entitled to an amount which is higher of 80 percent of the premiums paid till the date of death or the surrender value as available on the date of death, according to Chopra.
Further, in case the policyholder holds a unit-linked policy and commits suicide at any time within 12 months, the insurer will not pay any claim except to the extent of the fund value of the units held in the policyholder’s unit account on death.
Also, the old clause will be applicable for policies issued before 2014 and the new clause will be applicable for policies issued after 2014 subject to other terms and conditions.
Do all life insurance policies cover suicide?
Most types of life insurance plans cover suicide subject to terms and conditions. However, Sharma said, “The clause excluding suicide from coverage for the first one year of the policy is applicable to all life insurance products such as term insurance plan, traditional insurance (endowment plans), and Ulips.”
Situations where nominee may not get insurance claim in case of suicide:
1. If a lapsed policy is revived and after that, if the policyholder commits suicide within 12 months from the date of policy revival, the insurer can reject your claim.
2. Any wrong or misleading information given by the policyholder (at the time of signing the contract) to the insurer will lead to cancellation of the claim.
3. The nomination is a critical part of taking insurance and in almost all policies, nomination is ensured. Sharma said, ” Very rare, but there can be a scenario where the nominee may die before the payment under the policy triggers. In situation like that the legal heirs of the policyholder are eligible to get the benefit under the policy.”
4. You cannot claim suicidal death cover from the policyholder’s employer in case the policyholder was insured under group life insurance policy. Santosh Agarwal, Chief Business Officer- Life Insurance, Policybazaar.com said, “In a group life insurance policy, the suicide is not covered due to the reason that these policies have the tenure of one year and suicide exclusion clause is usually covered under the life insurance policies after the completion of one year.”