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How suicide factors into life insurance

Life insurance and suicide

One of the biggest life insurance myths is that insurers won't pay out if you commit suicide.

However, life insurance companies pay out death benefits on a death by suicide just as they do with any other death -- unless the death takes place within a certain time frame after the policy was taken out.

Most individual life insurance policies have a two-year suicide exclusion, says Tony Steuer, life insurance expert and founder of The Insurance Literacy Institute. After that, they pay out for a death by suicide. "It's pretty black and white," Steuer says.

In the United States, more than 40,000 people die from suicide each year, and it's the 10th leading cause of death overall, according to the Centers for Disease Control and Prevention.

So, what happens if a suicide occurs during the period covered by the suicide exclusion? In that case, the insurer would likely refund the premiums to the policy owner, which could be the estate of the person who died, Steuer says.

Suicide exclusions exist to prevent people who intend to commit suicide from taking out policies right before they die, says Glenn Kantor, a founding partner of Kantor & Kantor, a California law firm that handles insurance cases.

"They figure if you can last two years, that wasn't your intent," he says of insurance companies.

Suicide gray areas

Life insurance and suicide can get complicated, though, when a death occurs during the suicide exclusion period. Sometimes families go to court.

Take the case filed in May 2015 by Jennifer Mullen Collins, the widow of a Navy SEAL who on deployments to Iraq, Afghanistan and Kuwait survived bomb blasts and other traumatic events and suffered multiple injuries, including concussions.

After his return to the United States, her husband found a job with a security consulting firm and got two life insurance policies through his employer. He was diagnosed with PTSD and major-depressive disorder, and soon took his own life.

The life insurance company paid a death benefit of a little more than $100,000 for the basic policy, but refused to pay on the $500,000 supplemental policy, pointing to the two-year suicide exclusion.

Collins sued the company, stating that her husband's death was not a suicide and that he "died due to the diseases he developed during his service to his country." The case has not yet been resolved, according to Collins' attorney Wendy McGraw.

In other cases, it might not be clear whether the cause of death was suicide or an accident. For example, on his website, life insurance agent Chris Huntley outlines a case which a man, right after a breakup with his girlfriend, drove at 100 mph straight into a bridge.

The man's death happened within the suicide exclusion period on his policy, but no one could prove what he was thinking right before the crash, so the insurer paid the claim, Huntley writes.

For some life insurers, if a death occurs after the suicide exclusion ends but within two years of a coverage increase, the beneficiary will get the lower amount.

Read also: Most common reasons why life insurers deny claims

What to know about life insurance and suicide

Here are four things policyholders and their families should know about life insurance and suicide.

A group policy might not have a suicide exclusion. If you start a new job and get a basic group policy from your employer, it probably won't contain a suicide exclusion, Kantor says. That's because the company figures you're not getting the policy because you plan to commit suicide, he says. However, if you opt to buy the additional coverage, that probably will contain a suicide exclusion, Kantor says.

 Getting a new policy restarts the suicide exclusion. Even if you've had life insurance for years, taking out a new policy restarts the clock on both the suicide exclusion and the contestability period, Steuer points out. It's something to consider if you're thinking of getting a new policy, he says.

Suicide doesn't reduce the payout amount. Another common misconception consumers have about life insurance is that taking your own life results in a reduced benefit amount due to the cause of death. That's not true, Steuer says. In the past, there were policies that paid out different amounts for different manners of death -- say, one amount for cancer and another for a heart attack.

Suicide isn't an accident. If you have an accidental death and dismemberment rider -- an addition to your life insurance policy -- or a separate accidental death policy, a claim likely will be denied in a suicide, Kantor says. "Suicide is never an accident," he says. 

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