New Jersey Life and Health State Practice Exam

What happens if an insured commits suicide within a specified period from the policy's inception?

1. The policy is void

2. The insurer pays double the death benefit

3. The insurer returns premiums paid minus indebtedness and with interest

4. The insurer only returns premiums paid minus indebtedness and without interest

The correct answer is: The insurer only returns premiums paid minus indebtedness and without interest

When an insured commits suicide within a specified period from the policy's inception, typically referred to as a "suicide clause," the primary concern is the insurer's responsibility regarding the death benefit. Most life insurance policies include a suicide clause that prevents the insurance company from having to pay the full death benefit if the insured dies by suicide within the first two years of the policy. Instead, the insurer's obligation is limited. In this context, option D accurately reflects the standard approach taken by insurers: they will return the premiums that have been paid, minus any outstanding debts related to the policy, such as loans taken against the cash value, and this return of premiums is typically made without interest. This outcome is designed to protect the insurer from potential fraudulent claims while still offering some financial recourse to the beneficiaries. This policy framework underscores the balance that life insurers seek to maintain between risk management and fulfilling their obligations to policyholders and beneficiaries. Other options may imply that the policy is void or offer additional benefits that do not align with standard insurance practices concerning suicide within a restricted timeframe.