Suicide Clause, Reinstatement, and Misstated Age on a Whole Life Policy
Marcus applied for a $250,000 whole life policy in March 2015 and listed his birth year as 1975; he was actually born in 1970. The policy was issued as applied with a two-year suicide clause and a two-year incontestability clause, and the premium was $3,500 a year. Marcus stopped paying in 2019 and the policy lapsed. In January 2020 he reinstated it, paying back premiums with interest and providing evidence of insurability; the insurer placed the original policy number back in force. A $30,000 policy loan was outstanding at his death. Marcus died in November 2021. His daughter, the beneficiary, has submitted a claim for the full $250,000.
1. Assume the death certificate says suicide. Does the insurer pay $250,000? Analyze the suicide clause, the reinstatement, and the misstated age.
Read the worked answer
The $250,000 is not payable. The suicide limitation is measured from the effective date of the coverage in force. Reinstatement is not a continuation of the old contract for limitation purposes - the reinstated policy carries a fresh suicide period and a fresh contestable period. Marcus died roughly 22 months after the January 2020 reinstatement, inside the two-year suicide window.
Result: the insurer's obligation is limited to a refund of premiums paid (with any interest or refund required by the policy or state rule), less outstanding indebtedness. The face amount is not paid.
Do not confuse this with the incontestability clause. Incontestability bars the insurer from rescinding for a misstatement in the application after two years; it does not wipe out the suicide limitation, and the suicide limitation is not itself a contest of the application. Because death occurred within two years of reinstatement, the insurer could also have contested the reinstatement if the evidence of insurability had been false - but the suicide provision resolves the claim more cleanly.
Misstatement of age is a separate, open-ended adjustment. Unlike other misrepresentations, age is corrected at any time: the benefit is adjusted to what the premium actually paid would have purchased at the insured's true age. That adjustment would have applied had the death been from another cause, but it does not resurrect coverage the suicide clause excludes.
2. Now assume Marcus died in a car accident in November 2021 instead. What does the insurer pay, and how do the loan and the age error interact?
Read the worked answer
He is inside the contestable period but the misstatement is one of age, so the remedy is adjustment, not rescission. Even though death came within two years of reinstatement, a simple age error is handled by the age-adjustment provision - the insurer does not void the policy; it pays the amount the premium would have bought at the correct age.
Work the numbers:
- Stated issue age in 2015 was 40 (birth year 1975); his true issue age was 45.
- At age 40, $3,500 a year purchases $250,000 of this contract. At age 45 the same $3,500 buys a smaller face amount - assume the rate table shows roughly $212,000.
- Adjusted death benefit: about $212,000.
- Subtract the $30,000 loan plus accrued interest, which is an indebtedness the insurer deducts from proceeds.
- Net payable to the daughter: roughly $182,000, less any interest on the loan.
Point of judgment for the exam: a beneficiary who sees '$250,000' on the declarations page will expect the full amount. The correct answer is that the printed face amount is not the payable amount when age was misstated and a loan is outstanding; the policy's own adjustment and indebtedness provisions control. If the insurer instead tried to rescind for the age error, that would be wrong.