Would life insurance be paid out on someone executed for a crime? Can death row inmates get life insurance?

February 8, 2008

Dear Cecil:

A while back some friends and I were discussing ways in which a suicidal person might still get their life insurance payout. One option that came up was to be executed by the state. Would a life insurance company pay out a policy if one were executed for a crime? How about if one is gunned down during the course of committing a crime? Also: Would it be possible for someone on death row to get a life insurance policy?

Besides being 100 percent insane, not to mention wildly immoral (they don't give out the death penalty for mail fraud, you know), the scheme you're discussing addresses an issue that doesn't exist. The underlying assumption here - that life insurance providers won't pay out in cases of suicide - isn't accurate, or at least isn't accurate anymore.

Let's lay some groundwork here. While insurance companies hate to part with a buck if they don't have to, they concluded long ago it was bad for business if the public saw them as weasels who routinely tried to get out of honoring their commitments. To reassure potential customers that this wasn't the case, in the mid-to-late 1800s they developed the incontestability clause, which limits the amount of time the company gets to uncover and object to problems with statements made in the policyholder's application. Once the specified period is over the company generally has to honor the policy.

A related change had to do with how insurers dealt with suicide. It used to be that policies regularly contained an open-ended exclusion for suicide - if the insured offed himself, regardless of how long after purchasing coverage, the insurer didn't have to pay. But there are conflicting public-policy positions here: One, long espoused by insurance companies, is that it's wrong to create an economic incentive for suicide by paying off beneficiaries. The other, ultimately adopted by most courts and state legislatures, argues that it's wronger to tell the grieving family they won't be seeing any insurance money because their loved one chose to take his life. After much litigation, the suicide exclusion has now been limited in most cases to two years, research having indicated that such a period is long enough to weed out those who buy life insurance with the specific intention of killing themselves thereafter.

So: if someone does himself in more than two years after his life policy took effect, the insurer typically will pay. If the death takes place within two years of the start date, though, and the insurance company can prove it's suicide, not an accident - it's their exclusion, so the burden's on them - they'll usually return any premiums that were paid, but that's it.

OK, but what if your hypothetical suicidal policyholder nonetheless insists on doing what you describe - ending his life by committing a crime and either being killed in the process or getting arrested, convicted, and executed? As with suicide, insurers used to exclude death resulting from the commission of a felony, which was usually held to include execution. Nowadays, however, most large insurers will cover any death after the two-year suicide exclusion is up (assuming the policy isn't specifically limited to accidental death), so as long as the beneficiary doesn't aid in the crime, the insurance company will likely pay out.

Things get more complicated if the crime and resulting death transpire before the exclusion ends, as the insurer could try to prove that the perp was contemplating the scheme when he bought the policy. It's notoriously difficult to establish the state of mind of someone who's no longer around to answer questions, but if it could be demonstrated that the policyholder had, say, asked a syndicated columnist about the feasibility of such a racket, that'd probably look a little fishy.

I should point out that legal rulings have hardly been unanimous when addressing such matters, and in recent years there just haven't been that many cases involving life insurance payouts following felony-related deaths - perhaps because the people involved tend to be poorer than average and unlikely to put any discretionary income into a life policy. And since specifics vary from state to state and policy to policy, anyone thinking along these lines will have an awful lot of fine print to read.

As for that last question: Insurers have been studying mortality rates for a while now and have a pretty good idea of how to play the odds for most groups of people. When dealing with those whose habits (e.g., smoking), hobbies (skydiving), or jobs (stunt driving) make them a worse bet to live long lives, the insurer can refuse to offer coverage or jack up the premiums until the math looks OK. So if you're a death-row inmate and you do find someone who'll sell you a policy, I can pretty much guarantee that you won't like the rates.

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