Indiana State Life and Health Insurance Practice Exam

What is the primary purpose of the Suicide provision in a life insurance policy?

1. Decline an applicant who is contemplating suicide

2. Safeguard the insurer from an applicant who is contemplating suicide

3. Protect the insurer from ever paying a claim that results from suicide

4. Allows the insurer the option to pay a death benefit in the event of suicide

The correct answer is: Safeguard the insurer from an applicant who is contemplating suicide

The primary purpose of the Suicide provision in a life insurance policy is to safeguard the insurer from an applicant who is contemplating suicide. This provision typically specifies that if the insured dies by suicide within a certain period after the policy is issued, the insurer may not have to pay the death benefit. This is crucial because it helps protect the insurance company from bearing the financial risk associated with individuals who may be at high risk of taking their own lives shortly after obtaining coverage. The provision serves to ensure that individuals do not take out policies with the intention of committing suicide shortly thereafter to leave a benefit to their beneficiaries. By allowing the insurer to assess the risk associated with the applicant's mental health status, the provision protects the insurer's financial stability while still enabling policyholders to obtain necessary coverage under normal circumstances. Over time, many policies will lift this provision after a set period, meaning that claims made after that period would be paid out, reflecting the insurer's acknowledgement of the passage of time and the reduced risk as the policy matures. This approach balances the interests of both the insurer and the insured, ensuring that coverage is meaningful without exposing the insurer to undue risk.