The purpose of a life insurance policy is to ensure that a policy’s beneficiaries usually family and relatives receive appropriate financial arrangements in case the insured dies.
This is usually interpreted to mean accidental or natural death.Suicide is generally considered one of the options, but it is clear that the potential beneficiaries will be left struggling financially if the policy-holder takes his or her own life as they would be death through natural causes.
However, there are ways that exist in life insurance policies to ensure that individuals are protected in case of a tragic suicide. There should be ways that will protect businesses of life insurance policy.
Life insurance policies contain a suicide clause – sometimes called an incontestable clause ,that declares what will become of the policy in the event of the holder taking his or her own life. It is a common practice in such clauses as it’s considered the moment of death which clarifies that if an insured person takes his or her life, within two years of the life insurance contract, no benefits will be payable in such situation. However, due to the fact that a number of premium has be paid on the policy, they will be reimbursed to the beneficiaries. In most cases, some sort of payment will be made if a suicide occurs after two years or the period mentioned in the suicide clause ,even if it was not all a designated beneficiaries.
The suicide clause gives beneficiaries a clear idea of what the restrictions will put on their likelihood of receiving payment of life insurance, but it is also there to protect the life insurance company’s adverse selection, the practice of obtaining policy deliberately with the intention of planning his or her death and allowing a beneficiary to collect money.
Adverse selection is also used to refer to the tendency of these people who have high-risk lifestyles, chronic health problems or who are in dangerous or unhealthy occupations , such as those underground or in a war zone , to achieve significant levels of life insurance. In an attempt to mitigating the financial consequences of these actions, the life insurance companies increase premiums and provide limited coverage for these type of people.