What does a 'suicide clause' provide in a life insurance policy?

A 'suicide clause' in a life insurance policy specifically addresses the circumstances under which the insurer will pay out benefits in the event of the insured's death by suicide. This clause typically stipulates that if the insured commits suicide within a specified period, often two years from the policy's effective date, the insurer will not pay the death benefits. This period is set to prevent potential abuse of the insurance coverage, where individuals might seek to take out a policy and then end their lives shortly thereafter to benefit their beneficiaries financially.

This provision serves to manage the risk for insurers, providing clarity on their liability concerning suicides that occur soon after the insurance policy is issued. After the specified period has elapsed, the policy generally pays out regardless of the cause of death, including suicide, as long as the premiums are paid and the policy remains in force. Understanding this clause is crucial for both policyholders and financial advisors, as it highlights the limitations and protections inherent in life insurance contracts.