Tennessee Insurance Practice Exam

What is the purpose of the suicide provision in a life insurance policy?

1. To provide benefits after a suicide

2. To deter insurance fraud

3. To safeguard insurers from suicidal applicants

4. To lower premium costs

The correct answer is: To safeguard insurers from suicidal applicants

The purpose of the suicide provision in a life insurance policy primarily serves to safeguard insurers from the risk of insuring individuals who may have a high propensity for suicide. This provision typically states that if a policyholder takes their own life within a specified period—often the first two years of the policy—the insurer will not pay out the death benefit. This timeframe helps insurers mitigate potential losses from individuals who may purchase life insurance with the intent to commit suicide shortly thereafter, a phenomenon that could lead to an increase in claims and fraudulent behavior. By including this provision, insurance companies can manage their risks more effectively and ensure that they are not exploited by applicants who might be facing severe mental health issues. Additionally, it encourages responsible underwriting by allowing insurers to assess and address the mental health of applicants before issuing a policy. While the provision may seem harsh, its primary intent is to foster a stable insurance market and ensure policies are equitable for both the insurer and the policyholders.