Life Insurance, Suicide & the Two Year/One Year Rules

Now, I know the title does not sound exciting, but there is much money at stake. How much? Millions, and some of it may belong to you if you understand the two-year rule and the one-year rule regarding life insurance death benefits.

Life Insurance and the Two Year Rule

After a life insurance policy is in force for two years, failure to disclose a medical condition on the insurance application cannot be used to defeat coverage. Theoretically, a person could lie through their teeth on the insurance application and the beneficiaries could still collect a death benefit so long as the policy is in force for two years before death.

This rule can be used by the insurance company, too. If an insured dies within that two year window, the insurance company can deny coverage if the insured did not fully disclose his personal and medical history, even if it has nothing to do with the cause of death.

As you can imagine, if an insured dies within that two-year period, the insurance company may make every effort to obtain medical records, look for something that was not disclosed and deny coverage. For example, if the insured is hit by a truck and did not disclose treatment for cancer, the death benefit can be denied. The fact that it was a truck that killed him is not relevant.

The insurance companies are very aware of the two-year rule. Colorado requires that the two-year rule be clearly stated in the policy.

If an insured dies within that two-year window and does not disclose a medical condition, the insurance company has the upper hand. A beneficiary should not just give up the fight. However, it may be costly to recover the death benefit, and recovery will probably be less than the full death benefit.

Life Insurance and the One Year Rule

The two-year rule is not where the real money is. The real money lies with the one-year rule. It is worth millions. The one-year rule has to do with death by suicide. In Colorado, an insurance company cannot use suicide to avoid payment of a death benefit if the suicide occurs more than one year after the policy is in force. The suicide of a policyholder after the first policy year of any life insurance policy issued by any life insurance company doing business in Colorado shall not be a defense against the payment of a life insurance policy, whether said suicide was voluntary or involuntary, and whether said policyholder was sane or insane.

Colorado Law and the Two-Year Rule in Life Insurance Policies

Unlike the two-year rule, Colorado law does not require the one-year rule to be specifically stated in the insurance policy. In fact, the insurance policy typically says just the opposite. For example, the policy may say that the death benefit will not be paid if the insured commits suicide within two years of the policy issue date. Then, when a suicide does occur within that two-year window, the insurance company denies coverage making specific reference to the two-year suicide exclusion in the policy. At that point, most beneficiaries give up. It’s in the contract so it must be so? Right? Wrong! I have seen this scenario on several occasions. Even when directly confronted with the written law, insurance companies will still balk at making payment. However, with a little lawyerly persuasion, the insurance company will pay the full death benefit.

4 replies
  1. Ken Faig
    Ken Faig says:

    I presume Colorado requires that the policy state 1-year suicide exclusion if it is issued for delivery in Colorado. I presume that courts nationwide would generally uphold the Colorado policy provision in the event of suicide by an insured whose policy was issued for delivery in Colorado. It used to be the case that Missouri did not allow any suicide exclusion (unless it could be proved that the applicant intended suicide when applying for the policy). I think that may have changed in recent history (i.e., Missouri law changed to allow an exclusion period). However, the non-uniformity of the suicide exclusion limitation across the states (I believe 2 years is in the NAIC model law) does raise interesting legal questions.

    Suicide exclusion is clearly a delicate issue from the underwriter’s point of view. Policy forms with no exclusion might be proposed for classes of preferred risks but the underwriter has to ask: why would a proposed insured (if a desirable risk) want/need immediate inclusion of death by suicide? I have also seen proposals for policy forms with perpetual suicide exclusions (not allowed by current law in any U.S. state). I think this is a also questionable proposal. Life claims after the contestability period has run should be kept simple with the objective of covering all claims except those disallowed by common law or slayer statutes.

    Assisted suicide raises its own issues. The Maryland Supreme Court rules in favor of recovery by the beneficiaries of an insured who had a friend kill her with a shotgun. They ruled it was not suicide.

    Hope these comments are of interest.

    Reply
  2. Anna Campbell
    Anna Campbell says:

    My brothers wife committed sucide. I believe his life insurance policy was over one year but under two years. The company returned his premium and denied payment of the policy. Am I correct in my thinking that since it is over the one year mark they have to pay the entire policy? It’s only 50,000, but it would help pay the bills that have been acquired due to her death and maybe help a little with the three children she left behind.

    Reply
  3. Douglas Turner
    Douglas Turner says:

    Ms. Campbell:

    It is hard to answer your question without more information. For example, date of policy issue, date of death, what state, date insurance company denied coverage, copy of teh application, whether there was another reason other than the suicide under which coverage was denied, etc.

    We offer a $250.00 initial consultation on cases like this. We either take the case on an hourly basis or contingent fee depending on the circumstances. If your brother would like to proceed, please have him contact the office and arrange for an initial consultation.

    Thank you,

    Douglas Turner

    Reply

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