Insurance companies side step all avoidable risks through restrictive and exclusion clauses in a policy. The suicide clause is a good example of a restrictive clause.

Generally, a suicide clause states that if death of the life assured takes place as a result of committing suicide within one year of the commencement of risk, the policy shall be void. Given below is the suicide clause as it appears in the policy of a private sector life insurance company - ‘If the life assured commits suicide within one year from the date of commencement of risk or date of revival if revived, whether sane or insane at that time, the policy will be void and no claim will be payable’.

What is important to note here is the operation of the exclusion clause from date of revival too. Beyond the period specified in the suicide clause, the claim is payable on death by suicide.

The suicide clause on an LIC policy is as follows — ‘This policy shall be void if the life assured commits suicide (whether sane or insane at the time) at any time on or after the date on which the risk under the policy has commenced but before the expiry of one year from the date of commencement of risk.

The Corporation will not entertain any claim by virtue of this policy except to the extent of a third party’s bona fide beneficial interest acquired in the policy for valuable consideration of which notice has been given in writing to the branch where the policy is being presently serviced (where the policy records are kept), at least one calendar month prior to death.’

Third party interest

The above clause protects the bona fide interests of a third party which has acquired interest in the policy through an absolute assignment by paying money to the policyholder. Suppose a company has given a housing loan of Rs 15 lakh to the applicant on his new life insurance policies (worth Rs 20 lakh) that have been assigned to it as collateral security. Or, a bank has given an education loan of Rs 10 lakh to a student, accepting his assigned new life insurance policies (worth Rs 15 lakh) as security. If the loanee commits suicide, the policy will not be totally void. The insurer will protect the interests of the assignee, viz. the housing company or the bank by repaying the loan. The condition for this is that notice of assignment should have reached the insurer at least one month before the date of death.

group insurance

In group insurance business the life covered/assured is not the policyholder. Policyholder is a company/legal entity known as ‘Master policyholder’. Examples of group insurance schemes are (i) One Year Renewable Group Term Assurance (ii) Group gratuity assurance (iii) Group Superannuation (iv) Group savings linked insurance. In these schemes the decision to introduce them for the benefit of lives covered under the schemes is taken by the master policyholder.

It is unaffected by the impulsive decision of a life covered to kill himself. As such the suicide clause is not applied in group insurance; death benefit is paid to nominees/legal heirs in all cases of death.

The interest of a conditional assignee is not protected under the suicide clause of any insurer, the reason being that he acquires an interest consequent on death of the life assured. If the absolute assignee (other than life assured) commits suicide in the first year of the policy it does not affect the validity of the policy, instead his rights and liabilities in the policy are transferred to his legal heirs. And the policy continues to cover risk on the life of the assured.

(The author is President, Society for Promotion of Legal and Insurance Awareness.)

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