I recently came across a life insurance blog where the question was asked, “Can a life insurance company cancel a policy within the first two years of inception if (the potential for) suicide is expected?” I tried to comment and answer the question and my response was rejected. The question needs to be addressed so I’ll do it here.

The question asked was, “My friend has a term life insurance policy that is less than 2 years old. She entered the hospital recently for a newly diagnosed bipolar disorder and had admitted to thoughts of suicide. Within 2 months of her stay and diagnosis, her term life insurance policy was canceled by the insurance company for reasons of risk. Can they legally do this? I read the policy, but am unclear whether they have the right to do this. Thanks.”

There were four comments that were posted:

1. Most Life Insurance contracts have a two year “contestable” period. Any suicide during the first two year period will result in a refund of the premiums paid and no death benefit paid. After the policy has been in force for two years, a death benefit will be paid even in cases of suicide. Try this site to find the best life insurance.

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Obviously this was an agent answering but they ignored the question and dropped a link to their website.

2. Yes, they have the right to do this.

3. Most state they have that right in the policy.

4. Yes, they can. But, I don’t know why they would for the “thoughts of suicide”. I have never heard of a life insurance policy that pays out for suicide.

My response that was not allowed was as follows.

“The comments so far really don’t answer your question, “Can they legally do this?”. The answer is unequivocally NO they can’t cancel it once the policy is in force. If this happened prior to the policy going in force the company can retract their offer of coverage. But not after.

While the one answer above is correct that the company would not have to pay if there was a suicide in the first two years, in your friend’s case there was simply a change in health status. A question I don’t see asked or answered is why was the life insurance company notified of this event? There isn’t any requirement to do so.

I wouldn’t hesitate to take this to your state insurance commissioner.

Bottom line. There is no requirement in a life insurance contract to notify the company of changes in your health or mental status. Even if your conscience gets the best of you and you do admit to a change, the company does not have a contractual right to reconsider the policy once it is in force.