South Carolina Insurance Practice Exam

What does the suicide clause in a life insurance policy state regarding claims?

1. Full death benefit if suicide happens after two years

2. Return of premiums paid minus indebtedness

3. Return of premiums plus interest

4. No payment will be made

The correct answer is: Return of premiums paid minus indebtedness

The suicide clause in a life insurance policy generally states that within a specific time frame, typically the first two years of the policy, if the insured commits suicide, the insurer will not pay the death benefit. Instead, the policy usually stipulates a return of premiums paid, potentially minus any indebtedness related to the policy, such as loans taken against it. This is in place to prevent individuals from purchasing life insurance solely for the purpose of leaving a financial benefit to their beneficiaries through suicide. In scenarios where the insured takes their life after the specified period, the full death benefit is typically payable. This clause is primarily meant to deter moral hazard while still providing some financial return to the policyholder's beneficiaries in the event of a suicide within the initial period of coverage. Therefore, since the option mentions the return of premiums paid, minus any debts owed, this aligns with the intentions and standard practices established in life insurance policies regarding claims related to suicide.