Embedded Value: When claim is rejected due to suicide clause

Life insurance covers the risk of death during policy term but one cause of death is excluded from the risks that the insurer undertakes for paying the sum assured under a policy. When the policyholder dies “willingly” within a stipulated time frame, generally one year from the commencement of risk under a policy or from the date of revival of the policy, which is considered a contract ab initio , the claim filed is rejected.

Rejection of the claim is based on the final police report which includes the inquest report as well as the post mortem report so that the insurer doesn’t appear to be taking arbitrary decisions in this regard. Sometimes the claimants dispute rejection of such claims but this procedure is a settled practice in the insurance industry and confirmed by the judiciary too.

One-year clause
The suicide clause is invariably included in the life insurance contract around the world. Suicide is looked upon by law as a criminal act, but judiciary views suicide as a manifestation of great stress due to a variety of factors; hence, it treats suicide with abundant care. Hence rejection of life insurance claim following an episode of suicide within the period of one year is handled with utmost care.

Some companies are more empathetic and they refund the premium paid partially or fully. However, one year is supposed to be a fairly reasonable time for a person to rethink on the plan or decision to take the extreme step, hence the suicide clause is a safety against any moral hazard in undertaking risk on someone’s life.

Insurance companies globally hedge themselves against such risk through such clauses in the policy terms and conditions. However, if a policyholder commits suicide anytime after one year (or two years in some cases) of commencement of risk or revival of the policy the insurer is bound to settle the claim for the full sum assured. It is thus treated as a normal claim.

Suicide is a tragic event. Generally, it happens when people face hopelessness due to some reason or other and can no longer suffer hardship, exploitation or oppression, mental or physical. But at the same time it cannot be denied that mostly suicide is a well-meditated act on the part of the person resorting to this method of ending one’s very existence.

Claims process
According to the National Crime Record Bureau during 2019, every fourth minute one person claimed his life in our country by committing suicide. This is alarming as some of them could be policyholders. Not getting any claim amount after losing the bread earner could be a very traumatizing experience. But people have to understand the rationale behind the “suicide clause.” Insurers do not undertake the risk of planned death and no insurer can afford to do so. It is also farfetched to think that someone could believe that his family would be happier in his absence with the sum provided by the insurance company. Hence the insurance claim payment can never be sufficient reason to plan a death claim.

Often the police come across a suicide note which makes the enquiry easier but absence of any such proof makes the case complicated giving rise to several theories. All of these situations make the job of the insurer more difficult and complicated.

The claimants will have to have patience in such a situation and submit the final police report to the insurance company before expecting it to settle the claim when the policyholder’s death is suspected to be a case of suicide. The silver lining in insurance claim settlement process is that suicide after one year is considered as good as death from natural causes and claims are settled without hassles. In case of any problem the case must be brought before the insurance ombudsman or contested at the consumer forum.

The writer is former MD & CEO, SUD Life