Many people think that life insurance policies will not pay out when death is caused by suicide. This is not always the case. Back in the day, almost all insurance policies excluded claims for death caused by suicide. However, over time insurance policies have changed and now life insurance policies that exclude claims related to suicide are the exception rather than the rule.
What is life insurance?
Life insurance is a policy of insurance that pays a lump sum benefit if the insured person dies. Policies of life insurance can be applied for and bought directly from an insurance company or via a broker. Other time, life insurance policies can be held in superannuation funds and the cover is default cover; that is, it is provided automatically without any application being made.
How is a life insurance benefit paid out?
For life insurance that is held outside of superannuation, the policy will pay to a beneficiary listed in the policy schedule or to the policyholder.
If the policy is held inside superannuation, it can be more complicated. This is because the proceeds of the insurance policy will usually be paid into the superannuation account of the deceased. Then it becomes part of the superannuation account balance and is distributed to beneficiaries, according to the superannuation trust deed (the fund rules).
Will a life insurer pay when the cause of death is suicide?
It is worth noting that some policies do place some restrictions on claims related to suicide.
For example, some insurance policies do not pay out on claims related to suicide when death occurs within 13 months (or a determined period defined within the policy) of the policy being purchased.
Therefore, the widely held view that it is not worth claiming life insurance benefits where a person has died due to suicide, is largely not correct.
This is the case whether the policy is applied for, purchased and held in a private fund (outside superannuation) or inside a superannuation fund. It is also the case when the policy is default cover, which starts without any application being made and is held inside superannuation. (Note that sometimes default cover is also called group life cover).
However, some insurance companies still take a hard line when it comes to accessing claims related to suicide, particularly where mental ill-health or addictions play a role in the death. Therefore, we recommend that people seek advice if they are unsure whether it’s worth claiming on a life insurance policy after the death of a loved one.
If a loved one has died and you’re having difficulty with the insurance company or super fund in relation to the death benefits payable, feel free to get in touch with today’s blog writer, Tom Cobban.
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