How Life Insurance Policies Deal with Suicide

In the aftermath of a suicide comes sadness, pain, confusion and even anger. For family members, though, there may eventually be financial matters to deal with as well.

I don’t know whether actor Robin Williams, who died by suicide this week, carried life insurance.

For family members in general, two policy clauses can come into play when someone they love dies by his or her own hand. If either clause is invoked by the insurance company, the insured person’s family would receive no death benefit, though they would get back the premiums paid for the policy.

The key rules

* The "suicide clause." Usually, this clause states that no death benefit will be paid if the insured commits suicide within two years of taking out a policy.

Whenever an insured person replaces an existing life insurance policy with a new one, the time clock for the suicide clause is set back to zero and starts over again.

My friend Professor Joseph Belth, formerly the publisher of The Insurance Forum, wrote about a case in the 1970’s in which an Iowa man replaced four small policies with one policy that had a death benefit of about $60,000. Both the old policies and the new one were issued by Bankers Life Co.

The man committed suicide within two years of the issuance of the new policy. The insurer denied the claim under the suicide clause. A lawsuit followed. Four years later, on the eve of trial, the widow settled for $23,000, and also had to pay substantial legal costs.

* The "incontestability clause". This clause says that if the insured person made misstatements on the policy application, and dies within two years, the company can decline to pay the death claim. After that, the policy is “incontestable” except in cases of outright fraud.

Just as with the suicide clause, the clock on the incontestability clause is reset whenever someone replaces his or her existing policy with a new one.

Families may have to fight

There are plenty of examples where family members had to go to court to collect insurance benefits. Heath Ledger, who played the Joker in the movie The Dark Knight, died in early 2008, just seven months after he took out a $10 million life insurance policy. The New York Medical Examiner’s office ruled that the death was an “accident, resulting from the abuse of prescribed medications.” This raised two questions. Was the death a suicide? And did Ledger have a drug habit that wasn’t disclosed on his policy application?

The insurer, ReliaStar Life Insurance Co., launched an investigation into these questions, rather than paying the death claim immediately. In response, lawyers for Ledger’s young daughter Matilda filed a lawsuit. The case was settled for an undisclosed amount that was less than the full $10 million.

In a less prominent case, Todd Pierce of Montana, who had been fighting cancer for several years, died in a car crash in 2009. The sheriff’s department called it accidental death, and Pierce’s family filed a claim for $224,000 under an accidental death policy he had received through work.

The insurer, Metropolitan Life, denied the claim on the grounds that Pierce had committed suicide. Jane Pierce, Todd’s widow, sued the following year and the claim was eventually paid.