Texas Life Agent Practice Exam

Which clause typically limits the payout if the insured dies due to suicide within a specified time frame?

1. Suicide clause

2. Incontestability clause

3. Exclusion clause

4. Beneficiary clause

The correct answer is: Suicide clause

The correct answer is that the clause that typically limits the payout if the insured dies due to suicide within a specified time frame is known as the suicide clause. This clause is designed to protect insurance companies from excessive risk. It generally states that if the insured takes their own life within a specific period from the policy's issuance, the insurer will not pay the death benefit. Instead, they may only return the premiums paid. This specified timeframe usually ranges from one to two years and is intended to discourage individuals from purchasing life insurance with the intent to commit suicide shortly after the policy is enacted. By including a suicide clause, insurers also aim to mitigate moral hazard by ensuring that policies are not used as a means for individuals to inflict harm on themselves shortly after acquiring coverage. The presence of such a clause is common in life insurance policies, reflecting a balance between coverage and the need for responsible underwriting practices. The other clauses mentioned serve different purposes: for example, the incontestability clause ensures that after a certain period, the insurer cannot challenge the validity of the policy; the exclusion clause denotes specific conditions under which the insurer would not pay out; and the beneficiary clause specifies who will receive the benefits. While these clauses play important roles in life insurance contracts, they