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An individual commits suicide when (s)he has no motive to live further. According to the statistics released by the National Crime Records Bureau (NCRB), India had reported around 381 deaths by suicide every day in 2019.

These grim figures underscore the despair that people go through their life, and the life-shattering impact it has on their families and loved ones. In many cases, these deceased individuals were bread earners for their families, and with their passing, the financial coverage of the families ceases to exist.

Do insurance companies cover suicide?

Life insurance companies do not cover all types of death. For e.g. death due to involvement in criminal activity, murder by the nominee, death under the influence of alcohol, smoking, drugs, or due to involvement in adventure sports or other hazardous activities are not covered by life insurance. But is there a valid reason why life insurance companies do not consider suicide as intentional death?

According to a study published by the International Journal of Environmental Research and Public Health, the primary causes for most suicides in the world are psychiatric diseases such as manic disorders, depression, and psychosis. Considering this, death by suicide should not be always considered as intentional death. 

This view about suicide was also supported by the government when in 2017, the parliament passed the Mental Healthcare Act, which decriminalized suicide and took the initiative to help people with suicidal thoughts to heal themselves by giving medical advice.

From when did life insurance companies start to provide the cover?

Insurance companies started covering suicidal deaths on 1st January 2014. For all the policies that were issued before January 2014, if the insured committed suicide within one year from the date of the issuance of the policy, the policy would become void.

However, since 1st January 2014, the suicide clause was changed to reflect the following changes:

Traditional life insurance plans: For traditional life insurance plans, if the insured commits suicide within 12 months of the date of issue of the policy, the nominee is entitled to receive 80% of the premium paid.

Market linked plans: For market-linked plans, the nominee is entitled to receive 100% of the policy fund value if the insured committed suicide within the first 12 months of the policy commencement.

What are the terms for suicide coverage?

The cover for suicide is governed by the terms and conditions of the policy, which differs from company to company. Generally speaking, most insurance companies cover suicide 12 months after the purchase of the policy. In other words, there is usually a waiting period of one year. If the insured commits suicide, the company will pay the sum assured to the nominee after careful assessment of the case. This waiting period of one year is due to the moral hazard risk and forms an important exclusion in major life insurance policies.

If the insured commits suicide within the one-year waiting period, the insurance company may provide a certain percentage of the total premiums paid. This clause is usually maintained to prevent cases of insurance fraud, where individuals deep in debt purchase an insurance policy and commit suicide to help their family get out of the difficult situation.

What if the policyholder commits suicide after taking a loan on the policy?

If the insured commits suicide after taking a loan on his life insurance, the burden of repayment doesn’t pass on to the nominee or the surviving family. As per the suicide clause, the insurance company will repay the loan to the bank. However, this can be possible only if the policy is assigned to the bank, i.e. the benefits of the policy are transferred to the bank as collateral for the loan. Therefore, when the insured commits suicide, the bank is paid first, and the remaining balance (if any) is paid to the nominee.

What are the exclusions for the suicidal death cover?

Suicide cover won’t be applicable in the following situations:

  1. If the insured commits suicide within 12 months of the revival of a lapsed policy.
  2. If the policyholder provides fraudulent or inaccurate information while purchasing the policy. In many cases, suicide claims are rejected if the policyholder has not declared facts (such as financial debts) while purchasing the policy.
  3. If the policyholder (who was insured under a group life insurance policy) commits suicide, then the nominee cannot claim for it from the employer of the deceased insured.

Conclusion

Life is a precious gift, and it would be helpful if people with suicidal thoughts take all the necessary help to win their struggle. It is very important to understand that insurance companies conduct full investigation and assessment before releasing suicide claims. Regarding the families of the insured, insurance companies are committed to providing financial cover in case of suicidal death of the insured.

Naval Goel is the founder of PolicyX.com. He is an Associate Member of the Indian Institute of Insurance`, Pune. He has been authorized by IRDA to act as a Principal Officer of PolicyX.com Insurance Web Aggregator.
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