What happens if the life insured dies within the exclusion period of the suicide clause?

When a life insured dies within the exclusion period of the suicide clause, the policy generally stipulates that the premiums paid are returned to the beneficiaries without interest. This clause is designed to prevent individuals from taking out a life insurance policy with the intention of committing suicide shortly thereafter, seeking to benefit financially from their death.

The rationale behind this policy provision is to provide a measure of protection for insurance companies against moral hazard, which refers to the risk that the insured may engage in risky behavior due to the safety net provided by insurance coverage. By returning only the premiums, the insurer avoids paying out the full face amount of the policy while still ensuring that the beneficiaries are not left entirely empty-handed.

In contrast, alternatives like paying the face amount, voiding the policy, or limiting the payout to half the face amount do not align with the specific operation of the suicide clause in most life insurance policies. The intent of such clauses and their typical implementation is to ensure that while the beneficiaries are compensated to an extent, the policy’s initial goal of providing financial support in case of death due to reasons other than suicide is upheld.