Life insurance policies have limits depending on cause of death

We encourage people to read their insurance policies thoroughly, even before they write the first premium check. The policy explains what is covered by the insurance, what kind of event triggers a valid claim, and what portion of the total loss the insurance policy will cover. The challenge is understanding exactly what the policy language means.

Florida law mandates that policies include certain provisions. Insurance companies have some standard or near-standard language that they like to include. The legal profession is trying hard to make contracts — and insurance policies are contracts — easily understandable; the clearer the language, the fewer the complaints and the faster policyholders are paid. If the policy reads as if it were written by a committee, that’s why.

The death of actor/comedian Robin Williams reminded us that life insurance policies can be difficult to understand, especially if you have just lost a loved one. The author of a column on Time.com explained a couple of things about life insurance that we believe are worth sharing. The columnist has no idea if Williams was insured — nor do we — but reports are that he committed suicide, and a life insurer will take note of that.

A life insurance policy may actually have a so-called suicide clause. If the insured takes his own life within two years of purchasing the policy, the insurance company will not pay. (Remember, with a life insurance policy, the insured may not be the policyholder. If you take out a policy on your spouse, you are the policyholder and your spouse the insured.)

The rule kicks in with every purchase of a life insurance policy covering the same person. So, Sam has had a policy on his brother for three years. His brother just started a new job with employer-sponsored life insurance. If his brother were to take his own life, Sam’s policy would pay (if everything else were in order), but the company policy would not.

In addition to the suicide clause, the policy likely has an incontestability clause. We’ll explain that next week.

Time.com, “How Life Insurance Policies Deal with Suicide,” John Dorfman, Aug. 15, 2014

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