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I'm currently reading terms for life insurance with survival benefit and investment. It's like you pay ten thousand USD each year and five years later you get back forty thousand USD (the four payments you made) and maybe some investment income. Also you're protected against sudden death or disability - in such cases you (or your family) get paid the whole forty thousand USD (or sometimes several times more) right after the unhappy event.

One kind of unlucky events is called "death for any reason" (as opposed to "death because of accident" which is a separate kind of unlucky events). "Any reason" is not really any reason - it excludes a number of reasons such as serving in army, taking part in a riot, drinking heavily, diving alone (no matter how deep), a lot of them. It also excludes suicide but only for the first two years of the policy and only if it wasn't caused by illegal actions of other people.

I don't get it. It makes sense that the insurance company doesn't want to cover the insured person's family in case he himself causes his own death. What's the difference between the first two years and the later years?

Why is the insurance company only refuses coverage if the event happens during the first two years but not later?

sharptooth
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2 Answers2

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I believe that the insurance company wants to discourage people from making money by committing suicide. If the insurance company covered suicide for the whole term then a suicidal person with $10,000 could end their life and leave their family $40,000. This not only hurts the company's profitability, but it also (to a very small degree!) encourages people to commit suicide.

What's the difference between the first two years and the later years?

They significantly mitigate the effects of providing any coverage for suicide by limiting it to the last three years of the policy. It's similar to the waiting period that same states mandate when someone is purchasing a firearm. If a suicidal person were to enroll in this plan with the intention of harming themself, then they have two years to get professional health and recover.

Then there's the question of why should an insurance company cover suicide at all? A common view today is that clinical depression is a mental illness and not a choice. Under this view, illness is the cause of suicide.

TTT
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Nosrac
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As others have mentioned insurance is a highly regulated industry. There is a common rule called a contestability period, typically two years. Typically, if you pass within the contestability period an insurer gets to re-review your application and potentially deny claims. There are laws limiting the contestability period to prevent life insurers from essentially handing out policies willy-nilly then underwriting them when a claim arises. After the contestability period has elapsed an insurer has very little legal wiggle room to avoid paying a claim, even if you lied on your application or caused your own death.

quid
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