Suicide, Incontestability, and Age Misstatement
Dana applied for a $500,000 20-year term policy in January 2023. On the application she wrote her birth year as 1976; her actual birth year is 1975. The policy was issued at a standard rate. In August 2024, Dana died by suicide. The beneficiary submitted a claim. The policy contains a two-year suicide exclusion and a two-year incontestability clause. The insurer also discovered the age misstatement. The correct age would have produced a slightly higher premium and a $470,000 benefit for the same premium.
1. How much, if anything, will the insurer pay, and why?
Read the worked answer
The insurer will likely refund the premiums paid and pay no face amount.
Reasoning:
- Dana died by suicide in August 2024, about 19 months after issue. That is within the policy's two-year suicide exclusion.
- A typical suicide clause limits the insurer's liability during the exclusion period to a return of premiums.
- The incontestability clause does not override the suicide clause. Incontestability generally bars the insurer from contesting the policy's validity after two years, but the suicide exclusion has its own time period.
- The age misstatement does not change the result because the suicide exclusion already caps the benefit at returned premium. The age-adjustment clause would matter only if a death benefit were otherwise payable.
2. How would the answer change if Dana had died from a car accident in August 2024?
Read the worked answer
The suicide exclusion would not apply. The claim would be evaluated under the contestability period and the age-misstatement clause.
Because the death occurred within two years, the insurer could examine whether the application contained a material misrepresentation. A birth-year error that changes the premium is usually handled by the policy's age-adjustment clause, not automatic rescission, unless the misstatement was material and the insurer would have declined or rated the policy differently.
Likely result: the insurer pays the benefit adjusted to what the premium would have purchased at the correct age, or $470,000 on these facts. The key point is that the suicide clause and the age-misstatement clause operate independently.
3. What if the insurer discovered the age misstatement at 25 months and Dana died at 26 months from a heart attack?
Read the worked answer
The incontestability clause would bar the insurer from rescinding the policy for misrepresentation after the contestability period. The insurer cannot avoid the claim by arguing that it would have issued a different policy had it known the correct age.
However, many life policies contain a separate age-misstatement provision that allows the insurer to adjust the benefit to the amount the premium would have purchased at the correct age. That is not the same as contesting the policy. The likely payment is the adjusted benefit, $470,000, rather than the full $500,000.
The distinction matters: incontestability protects the policy's validity, while an age-adjustment clause protects the insurer against paying more than the correct premium would have bought.