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Education Centre Life Insurance and Suicide | Life Insurance and Suicide |
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According to SPA (Suicide prevention Australia – a registered charity), Australia has one of the highest suicide rates in the developed world with more than 2000 persons killing themselves in every single year.
Although all Life Insurance policies differ with each other on one point or another but all do carry a specific suicide policy. Some policies reject any claim request if the insurer died as a result of suicide. Most policies however accept suicide claims if the death by suicide has occurred after 2 yrs from the date of issue of policy
The reason to deny insurance payout on suicide cases is to prohibit people who might otherwise be taken to commit suicide when they do not find any other way to come out of their financial problems. Research and findings have shown that there has been an increase in Life Insurance induced moral hazard. People committing suicide to get money to their beneficiaries are probably misinformed. All insurance companies have a clause which clearly states that no suicide insurance claims would be entertained within an exemption period. The exemption period differs from company to company and can be anywhere from 12 months to 2 years. Why Exemption Period? However, if a person is physically, mentally and socially healthy at the time of taking the policy but goes into despair over the period of time and commits suicide is still eligible for insurance payout to his beneficiaries. The condition being that the death by suicide should not happen within 2 years of taking a policy. This condition is again set to discourage despondent people with financial difficulties to take a policy with the very aim of committing suicide. A 2 yr wait period will make the person think twice before taking the policy with the sole aim of getting money to his beneficiaries by committing suicide. Such a person is not likely to wait for two years to take his own life. But, even the wait period doesn’t seem to act as a real deterrent as there has been an increase in suicides among insurers immediately after the expiry of the suicide exemption period. After two years however, most of the insurance companies will have to pay the money to the beneficiary of an insured regardless of whether the death was a result of sickness, injury or suicide. Is suicide the only way? A suicide by an insurer can put his family in a situation that is worst that before. What if the Insurance Company does not pay? The beneficiaries will then receive no money but will have to spend on funeral expenses and will in even more debt as they have lost the deceased income as well. On the other hand an unsuccessful attempt can lead to expenses in hospitalization, medicine and other related costs which may not be covered under his policy. However in this case there is no loss of a loved one and psychological counseling can be sought. However, not every family might be as lucky. Suicide claims therefore are difficult to settle. No insurance company can afford to freely distribute money to every insurer who commits suicide if they are to remain in business. However, not offering any money too gives an impression that the company is in no mood to settle any claims. Therefore companies put in a lock in period of either 13 months or 2 years before it can entertain insurance claims arising out of insurer’s suicide. This certainly helps prevent impulsive buying or adverse selection of Life insurance with the aim to commit suicide as soon as the policy is approved. |
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