Will life insurance pay out if someone commits suicide?
I know this is an uncomfortable subject and I certainly don’t want to trivialise it. But it seems to be an increasing problem in the world of life insurance, and we need to be aware of it.
I came across an article on fin24 entitled “Alarming increase in suicide claims.”
The article discusses Momentum claim statistics for 2014. Momentum paid out more than R2, 7 billion across their range of life insurance products – R1, 9 billion of that alone was for death claims.
Let’s make that more realistic shall we? Imagine for a moment that each of those claims was for a R1 million a pop. That’s 1,900 death claims in 2014.
- 49% of those death claims were car accidents.
- A further 20% were caused by suicide.
So what happens with suicide claims?
According to Momentum, they paid out 95.1% of their R2,7 billion in claims. Of the unpaid claims, 18% were not paid because of suicide. Now this doesn’t mean that all suicide claims aren’t paid, but it does point out that many get rejected.
What we want to know is whether or not our life insurance policies will pay.
And by the way, you might be thinking that suicide is the farthest thought from your mind, but what if you were treated for depression many moons ago, and that your death occurred under dubious circumstances? You wouldn’t be around to speak for yourself, would you?
What does your policy fine print have to say?
All life insurance policy wordings contain a clause which excludes suicide within the first 24 months of taking out a life insurance policy. This exclusion also applies to any increase in your cover every year.
So what am I saying?
If you opted to have the actual cover increase by 5% or 10% every year; then a brand new 24-month exclusion will apply to that additional 5% or 10% cover.
Here’s an example assuming a 10% increase in cover every year:
- Year one – R1 million cover
- Year two – R1 million original cover plus R100,000. Total of R1,100,000 in life cover.
- Year three – R1 million suicide exclusion falls away but R100,000 from year two remains. Life cover increases with another R110,000. Total life cover is now R1,210,000.
- Year four – Client commits suicide before the fourth policy anniversary. Only R1 million of the R1,210,000 pays out.
What advisors often forget to tell you
Every time you cancel a life insurance policy and replace it with another cheaper, better policy, you start from scratch again! Your advisor is supposed to inform you of all the costs and implications of switching from one company to another. By signing the replacement policy advice record you agree with the advisor that he has explained everything to you.
In fact, here is an example of what I’m talking about – talk about giving impartial advice in the best interest of the client. Notice how he says that ‘client chose not to contact…’ thereby placing all the blame on the client if things turn sour.
But there is one company who do things differently
That company is Hollard Life. As far as I know, they are the only company in South Africa currently who will take your previous 24-month suicide exclusion into account. They refer to it as “recognition of prior insurance” and it’s important to know about.
In conclusion
Life insurance is an expensive investment. It would be perfect if you could take out life cover next month and claim the month after. The reality is that most of us will pay for years and years before ever claiming. Make certain that you understand all the in’s and out’s of your policy because the last thing you want, is to have your claim rejected 20 years down the road.
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Great article.
Thankyou Jackson…much appreciated.
By the way, if you have any topics you’d like discussed in the blog, let me know.
Thanks for sharing. I would like to know if Liberty and old mutual cover suicide payouts and if clients re made aware of this
Hi,
All life insurance companies exclude suicide for the first two years of the policy. As far as I know, Hollard Life is the only life insurance company which takes previous insurance history into recognition. In other words, if you have life insurance elsewhere, Hollard Life won’t apply the exclusion if that policy is older than two years.
Also remember that if your life insurance has an annual increase in the actual cover, then a new 24 month suicide exclusion is applied to the amount by which your cover has increased.
Hope that makes sense?
Hi A friend of mine paid about R 5000 pm for more than 20 years on his momentum policy. In 2007 he feel in arrears and the broker wrote a new policy. Then last year he fell behind with 2 premiums and the policy was reinstated. A week ago he committed suicide and Momentum say that their is no claim. Which I understand but reinstating the suicide clause every time does not seem right to me. Any advice on the matter
Hi Hennie,
I know it seems unfair especially after paying for so many years. But we’re playing by their rules. Interestingly enough, the only company which recognises your past years of owning a policy, is Hollard Life (as far as I know).
Many people gloss over the suicide clause (and many brokers fail to point it out) thinking its irrelevant, but your friend is an example of this being a very real reality.
Hi i would like to know if i can make a cliam if i am diagnosed with depression
I am literally a month away from two year that I tried too take my own life. And we need life insurance to purchase a house liberty consultant assuresd Us we will get it I disclosed all my so or did details to them and we. Were declined. I need help
Hi,
The suicide exclusion is forward focused and applies to all new life insurance policies. In other words, the two years would apply from the date of acceptance of your policy. I will send you a mail and try to assist.
I think that the suicide clause is fine but why do insurance companies dont pay the 18% that you mentioned in your blog? I know that non disclosure of depression would certainly qualify for that.But still 18% sounds very high.What if politics and financial trouble is the only reason and the only outcome in your mind to provide for your family is suicide.How do you one prove that? Can you please comment on that?
Hi Kobus,
The 18% of claims not paid is where the cause of death was suicide. During the first 24 months of a new policy there is a suicide exclusion clause. If you opt for an annual increase in benefits then the 24 month exclusion applies once more, but only to the increased amount of life cover. If suicide occurs after month 24, then the insurer will pay the claim.
Why do they do this? To protect the liquidity of the insurance company. Risks are factored into the cost of cover. They know for instance, that if you’re a smoker there’s an increased risk of lung cancer and so they base their cost for smokers accordingly. How would they factor in the individual who is more prone to suicide?