Does life insurance pay out for suicide?
Suicide is a sensitive topic at any point in time. But it can be even more complex when there are finances involved in the form of a life insurance policy. This article explains how suicide can affect life insurance policies in Canada.
No one wants to talk about death, much less the topic of suicide. But when it comes to life insurance, it’s important to understand what is covered and what’s not. After all, the last thing anyone would want is for their loved ones to be left with financial hardships after they’ve passed on.
In this article, we will answer the question of whether life insurance covers suicide in Canada and what you can do if your claim is denied.
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What is life insurance?
Before we get into whether life insurance pays out for suicide, it’s important to understand what life insurance is, exactly.
Life insurance, very simply, is an agreement between you (the policyholder) and an insurance company. Under this agreement, you pay a certain fee (premium) to the insurance company every month or year. In turn, when you pass away, the insurance company will give a one-time, tax-free lump sum payout to whoever you named as your beneficiary or beneficiaries. Most people name their family members as their beneficiary — usually a spouse, child, sibling, or other close relative.
Life insurance costs depend on factors like age, sex, health, medical history, and lifestyle, among other factors. It also depends on the types of life insurance purchased — for instance, term life insurance or permanent life insurance. And, it is possible for someone to be denied life insurance if the company considers them too much of a risk. At the same time, a life insurance payout is not always guaranteed, and we’ll discuss that a bit further down.
A life insurance payout is referred to as a death benefit because the policyholder must pass away before the payment will be given to their beneficiary. But this payment can be used however the beneficiary sees fit. They can use it to help cover expenses like funeral costs, mortgage payments, and outstanding debts. Or, they could use it to take care of kids, pay for college tuition, maintain a certain lifestyle, or even travel the world.
What does life insurance cover?
Most life insurance policies will pay a lump sum to beneficiaries if the policyholder dies from:
Life insurance covers deaths considered to be natural. This includes old age but also heart attack, stroke, kidney failure, cancer, and even COVID-19, among other infectious diseases.
Terminal or chronic illness
Some life insurance plans will pay out if the policyholder dies from a terminal illness, but it depends on several factors. Usually, a no-medical life insurance policy will still cover individuals with terminal or chronic illnesses, albeit at a much higher price and with a lower payout amount.
Beneficiaries still receive a payout if the insured person dies from accidental death or a tragedy such as a car accident, drowning, etc.
In most cases, life insurance companies will pay out if the policyholder is, unfortunately, murdered. But a big exception to this is if the policy beneficiaries or someone related is believed to be the culprit responsible or involved in the policyholder’s death.
What does life insurance not cover?
A life insurance death benefit covers a wide range of scenarios. But, as we mentioned above, it is not necessarily guaranteed. Most life insurance plans do not pay out for:
Deaths from suicide within the policy’s first 2 years
We’ll go into more detail shortly, but suicide is not usually covered by life insurance — up to a certain time frame, in any case.
Deaths due to drug or alcohol use
If someone has a history of drug or alcohol abuse and, unfortunately, dies from an overdose, the insurance company may not pay out the death benefit.
Deaths due to criminal activities
Criminal activities can be anything that breaks the law. For instance, if someone is driving while under the influence and passes away in a car crash, their life insurance may not be paid out because they were doing something illegal that led to their death.
Deaths due to a pre-existing medical condition
We said above that terminal illnesses will be covered by life insurance in some cases, and that is true. But in other cases, a pre-existing illness that the insurance company was not told about could disqualify you from getting a life insurance payout. This is why it’s so critical to be honest on one’s insurance application, and disclose any medical conditions one may have.
Deaths while engaging in hazardous activities
Remember how we also mentioned that your lifestyle affects your insurance premiums? Well, it can also affect the payment of benefits. For instance, if someone suffers an accident and passes away while doing something the insurance company considers risky, like skydiving or rock climbing, they may deny the life insurance claim and not pay benefits to beneficiaries.
How does suicide affect life insurance payouts?
Suicide is a sensitive topic, and the question of whether life insurance covers suicide in Canada can be confusing. The answer is, it depends on the policy and the insurance company.
In most cases, Canadian life insurers will not pay out for suicidal deaths within the first 2 years of starting their policy. However, there are exceptions. And, whether insurance companies will pay out if a life insurance policyholder dies by suicide after 2 years also depends on several factors.
What’s a suicide clause?
A “suicide clause” is a standard part of most individual life insurance policies issued by Canadian insurers. It states that if the policyholder dies by suicide within a certain time frame, the insurance company will not pay the death benefit.
The suicide clause usually lasts for 2 years from the start of the policy. In other words, for the insurance company to agree to pay out for someone’s life insurance plan, that person must not die by suicide for at least the first 2 years after they signed up.
Does life insurance ever pay out for suicide?
Deaths by suicide can be covered by life insurance companies in some cases, but it depends on several factors. As we said, suicide is a sensitive matter and there are many factors to take into consideration, even with a suicide clause in place.
Some insurers will pay out for suicide once the initial two-year period stated in the suicide clause has passed. Others may make special consideration if the life insurance policyholder was known to have suffered from mental health issues for a long time, and if the insurance company believes the individual was not of sound mind at the time of their death.
On the other hand, some insurance companies will not pay out for deaths by suicide at all — even if they’ve had the policy for more than 2 years at the time.
We always recommend reading the actual wording of your insurance policy to know exactly what will and will not be covered by your insurer. But we know it can be complicated to understand how things will play out if something unexpected happens.
If you have questions about your life insurance coverage, you can always speak with your insurance company or PolicyAdvisor’s insurance experts, who’d be happy to help you out.
Does life insurance cover medically-assisted death?
Again, whether life insurance covers medical assistance in dying (MAID) depends on a number of factors. This is a topic that usually comes up alongside the question of whether life insurance cover suicide. There can often be debate over whether MAID is considered suicide, as it is only available for eligible individuals who are suffering from severe mental health issues. That also impacts what insurance companies would classify it as.
For now, many insurance companies in Canada will consider medically-assisted death as a special category and will pay out the death benefit even if the death occurs within the first 2 years of the policy.
What other factors could affect whether insurance companies pay out for suicide?
Aside from the suicide clause, some other factors that may affect whether an insurance company pays out for suicide in Canada include:
- Age and health status at the time of death
- Mental health history
- Prior suicide attempts
- Alcohol/substance abuse history
- Recent changes in behavior or circumstances (such as job loss, divorce, etc.)
What are other reasons why life insurance wouldn’t pay out?
There are several reasons why a life insurance policy may not pay out in Canada. Some common reasons include:
As mentioned earlier, most life insurance policies in Canada have a suicide clause that states they will not pay out in the case of suicide within the first 2 years of the policy.
If the policyholder provided false information on their life insurance application, the policy may be declared void and the insurance provider may refuse to pay out.
Non-payment of premiums:
If the policyholder does not keep up with their monthly or annual payments for a long period of time, the policy may lapse. This could be grounds for denial of a claim.
Some life insurance policies have what’s called “exclusionary clauses”. These clauses specifically state which circumstances the insurer will not cover. It’s typically for pre-existing medical conditions, dangerous activities, illegal behavior, etc.
Most traditional life insurance policies have what’s called a contestability clause or contestability period, which is usually 2 years. During this period, the insurer can investigate and deny a claim if it’s found that the covered person was not honest on their original life insurance application.
These are all more reasons why it’s so important to read through your insurance policy and understand the terms and conditions before you decide to buy.
How do life insurance companies determine if someone died by suicide?
Once an insurance claim is submitted, your insurance company will do its own investigation before making a payout. In the unfortunate instance of deaths by suicide, life insurers will usually look into the cause of death. This may include reviewing medical records, checking with law enforcement reports or police records, or even talking to family members or friends. After their investigation is done, they will determine whether the death benefit is payable or not.
What to do if an insurance claim is denied because of suicide?
If a life insurance claim is denied because of suicide, it can be a particularly difficult time. However, it’s important to know that you have options. Here’s what you can do:
- Review the policy. Before taking any action, it’s important to thoroughly review the deceased person’s life insurance policy and understand the terms of the policy. Check whether there was a suicide clause or other additional exclusions.
- Contact the insurance company. If you believe the claim was denied in error, you can contact the insurance company and ask for an explanation of their decision. In some cases, and especially if you have new information to provide, you can also ask for a review of the claim.
- Consider hiring a lawyer. The next step if you believe the claim was unjustly denied is to consider taking legal action. Many lawyers or other legal professionals specialize in life insurance claims and claim denial. They would be able to help you understand your legal rights and options, as well as guide you through the process of appealing the denial of your claim.
- File a formal complaint. You can also file a complaint with an official body in your respective province, such as the Financial Services Commission of Ontario (FSCO). The FSCO and similar organizations are responsible for regulating insurance companies in each respective province. They also serve to help resolve disputes between policyholders and insurance companies.
It’s important to remember that if your life insurance claim is denied because of suicide, it’s not a reflection of your loved one’s worth or value. Rather, it’s a result of the terms of the policy and the insurance company’s interpretation of those terms.
If you need any help with reviewing an insurance policy to find out exactly what’s covered and what’s not, or for help with finding the right policy for your needs, you can always speak with the friendly insurance agents at PolicyAdvisor. We’d be happy to provide tailored guidance to make sure you have the best insurance policy for you and your family.
The information above is intended for informational purposes only and is based on PolicyAdvisor’s own views, which are subject to change without notice. This content is not intended and should not be construed to constitute financial or legal advice. PolicyAdvisor accepts no responsibility for the outcome of people choosing to act on the information contained on this website. PolicyAdvisor makes every effort to include updated, accurate information. The above content may not include all terms, conditions, limitations, exclusions, termination, and other provisions of the policies described, some of which may be material to the policy selection. Please refer to the actual policy documents for complete details. In case of any discrepancy, the language in the actual policy documents will prevail. All rights reserved.
If something in this article needs to be corrected, updated, or removed, let us know. Email firstname.lastname@example.org.
- Most insurers do not cover suicide within the first 2 years of the policy
- There are some cases where suicide will be covered by insurance, but it varies
- If a claim is denied because of suicide, there are other steps you can take