What is the purpose of a suicide clause?

The purpose of a suicide clause in life insurance policies is to limit the payment of benefits if the insured dies by suicide within a specific period, which is typically two years from the policy's effective date. This clause is included to protect insurance companies from potential fraud, where individuals might purchase a policy with the intent of committing suicide shortly thereafter in order to provide financial gain to their beneficiaries. By enforcing this limitation, insurers can ensure the sustainability and integrity of their operations while still providing coverage for the vast majority of insured individuals who die by natural or accidental causes.

In scenarios where the insured takes their own life after the defined period—usually two years—the death benefit would then be paid to the beneficiaries, reflecting the idea that insurers are willing to take on the risk of suicide only after the policy has been in force for enough time to assess the overall risk.