Misstated Age, Suicide Clause, and a Third-Year Death
In March 2018, Dana applied for a $500,000 20-year term policy and listed her birth year as 1970. The policy was issued at a standard rate of $1,200 per year. Her true birth year was 1964, making her six years older; the correct annual premium for her actual age would have been $1,800. The policy contains a two-year suicide exclusion, a two-year incontestability clause, and a misstatement-of-age provision. Dana died by suicide in June 2021, more than three years after issue. The beneficiary submits a claim for the full $500,000, and the insurer discovers the age discrepancy during claim review. There is no evidence of fraud beyond the incorrect birth year, and all premiums were paid.
1. How much will the insurer pay, and on what contractual basis?
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The insurer should pay $333,333.33, not the full $500,000.
- The suicide clause lasted only two years. Dana died more than three years after issue, so the suicide exclusion no longer applies and the death is payable.
- The incontestability clause also expired after two years. The insurer cannot rescind the policy for the incorrect birth year at this point.
- However, the misstatement-of-age clause is not a contest of validity. It adjusts the benefit to what the premium paid would have purchased at the correct age.
Calculation: $500,000 × ($1,200 ÷ $1,800) = $500,000 × 0.6667 = $333,333.33.
2. Suppose Dana had died by suicide in December 2018. Would the analysis change?
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Yes, substantially. In December 2018 the death occurred within the two-year suicide exclusion period, so the insurer would not pay the face amount. Under a typical suicide clause, the insurer refunds premiums paid (sometimes less indebtedness) rather than paying the death benefit.
Because the death also occurred within the two-year contestable period, the insurer could review the application misrepresentation. If the age misstatement was material, the insurer might rescind the contract and return premium. But the suicide clause alone is enough to limit recovery to a premium refund.