If a policyowner commits suicide within one year, what is the insurance company's liability?

When a policyowner commits suicide within the first year of the policy, the insurance company's liability is typically limited to a refund of the premiums paid. This limitation exists because most insurance contracts include a suicide clause that excludes the payment of the death benefit if the insured dies by suicide within that initial period.

The rationale behind this clause is to prevent moral hazard—where individuals might be tempted to take out life insurance and then commit suicide to benefit their beneficiaries. By only returning the premiums, the insurance company fulfills its contractual obligation while also mitigating the risk associated with such circumstances.

This provision is a common practice across many life insurance policies and aims to balance the interests of both the insurer and the insured. It is important for policyowners to be aware of such clauses when purchasing life insurance to understand their coverage fully.