The Reality of Suicide and Life Insurance
Suicide is one of those faux pas discussion points. In reference to payouts for Life Insurance, however, there’s a lot you need to know.
Published: Tuesday, November 8th 2016
In the aftermath of a suicide, many families, over-and-above the grief, may have additional financial problems as a result of the untimely passing. This is also due to the fact that most insurance providers do not pay out when a death is "unnatural".
Understandably, there are strict guidelines surrounding this, which you will have to read about carefully in your insurance policy. We suggest with a fine tooth comb
Insurance companies, just like any other business, are looking for profits. And, like with any policy, your potential risk profile is always taken into account. Did you know that if you are classed with anxiety, most insurance providers will have certain exclusions?
Any unnatural deaths brought on by drugs, alcohol, or dangerous activities, where you put yourself in the line of danger, will not be paid out. For any risky hobbies mentioned in your policy, as part of your
lifestyle, a flat rate will be issued. These could include scuba diving or any risky professions.
This flat rate is usually worked out as a formula based on a percentage of your current coverage. This is then added to your premium.
Why Exclude Suicide?
As mentioned above, your risk profile will always be taken into account, when applying for life cover. This is in order for the insurers to avoid making a loss.
It may seem outrageous, but in the past, policyholders have bought a policy with the full intent of committing suicide as soon as their policy took effect. There are many mental health issues surrounding this including depression, loss of a job, rising debt, or a death in the family.
Main members become so desperate to ease their family's financial issues that taking their own lives, in order for beneficiaries to receive the policy's full payout, seems like their only way out.
In order to curb this incentive, certain restrictions had to be put in place. These include no claiming within the first two years of the contract. This restriction was put in place to eradicate both the Suicide and Contestability clause.
While a Suicide clause is a result of a self-inflicted death, a Contestability clause is when an insurer suspects foul play at the hands of a beneficiary. For example, hiring a hitman to murder the main member so beneficiaries can receive death benefits.
The First 24 Months Clause
Any death claim as a result of suicide that occurred in the first 24 months of an insurance policy, will not be compensated accordingly.
If the main member commits suicide within the first 24 months of the contract, beneficiaries will only receive all premiums paid, without the lump sum of the death benefit.
Exclusions On Life Insurance
There are generally two types of exclusions listed in a life insurance policy: outright and underwriter's exclusion.
1. Outright Exclusion
This is written into the insurance policy and is applicable to everyone. This restricts the circumstances under which a claim would be paid.
2. Underwriter's Exclusion
This is an exclusion, by the undertaker, who uses their discretion to determine whether they are willing to take on the risk posed by the applicant. Alternatively, they may pose higher premiums in order to cover expenses and still make a profit.
Suicide On The Rise In South Africa
Gareth Friedlander, Head of Research at Discovery Life, says they have experienced a similar marked increase in both death claims due to suicide, and/or capital disability claims due to mental and behavioural conditions.
“In 2011, suicide and mental and behavioural conditions accounted for 6,9% of death claims and 15% of Capital Disability claims. In 2014, they accounted for 6,7% of death claims and 14% of Capital Disability claims, respectively.”
Speaking at the Risk Summit held in Sun City last year, Momentum Myriad’s chief, Stephen van Niekerk, noted an alarming increase in death claims as a result of suicide.
According to the Momentum Retail Insurance claim statistics, a 20% increase in suicide claims and 49% increase, as a result of car accidents, were recorded during the January to December 2014 period.
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Death benefits will not be paid out if:
- The Life Insurance policy is less than two years old.
- There is any suspicion of foul play as listed in the Contestability clause.
- Any pre-disclosed mental issues (depending on policy).
- If the main member commits suicide or breaks Contestability clause - beneficiaries will receive premiums paid but not the death benefit.