Contestability, the Suicide Exclusion Clause, & MAID

Life insurance Policies in Canada typically come equipped with a set of features known as clauses. These stipulate specific instances when the policy may have some special rules that determine whether or not the death benefit will be paid.

These clauses are critical to understand because they can have significant consequences.

Every Life Insurance policy in Canada has a two year period known as the contestability period. This period starts from the day the policy becomes valid (In force). It states that if the benefit would be paid within the first two years, the insurance company has the right to do a thorough review of your application before paying the death benefit.

If the insurance company determines that you’ve omitted a key fact, medical diagnosis, or have misrepresented yourself in any way - the policy may become void, and the insurance company will not have to pay the benefit. They will typically refund the premiums in this situation, but that is not guaranteed.

A common example might be cancer. If you don’t disclose on your medical form that you have cancer, or have had cancer, and the disease comes back - the insurance company wouldn’t be obligated to pay the death benefit given that you misrepresented that material fact.

This saliently also applies to concerns around mental health. These concerns are oftentimes overlooked, but nevertheless are a key part of the overall health profile.

Other examples include failing to disclose participation in high-risk activities such as skydiving, or misrepresenting height, weight, drug use, or alcohol consumption. Accuracy is essential when completing your application.

The same principle applies to critical illness & disability insurance policies. For instance, if someone becomes unable to work due to severe depression but had previously sought treatment without disclosing it, that omission could invalidate the claim.

In other words, it is extremely important to be honest on your insurance application. As misrepresenting facts, intentionally or unintentionally can eliminate the validity of the policy.

Similar to the two year contestability period, life insurance policies have a suicide exclusion clause typically in place for the first two years. This means that if the insured were to commit suicide within two years of buying the policy, the payout and contract is null and void.

The important figure to remember is that two year number from the time the contract is signed. Once that time has passed, there is less scrutiny on how benefits are paid out.

These clauses are put in place to avoid a situation where people are attempting to “buy a claim”. They are why it’s so important to acquire insurance when you don’t need it yet - (ie, you’re healthy) because as the old saying goes - today is the youngest and healthiest you’re ever going to be.

There are certain instances where policyholders have lied on their policy by accident. Either because they’ve forgotten about something, misremembered a childhood diagnosis, or otherwise. Unfortunately, these omissions are still grounds for the insurance company to void the policy.

What’s more is that when a benefit is paid out or when a claim is made within the first two years - the insurance company is entitled to take its time investigating matters. They are permitted to follow up, seek more information, and sometimes ask for evidence from physicians. This is a reality of insurance that is important to acknowledge and plan around. Death benefits do not get paid out as quickly in the first two years - and are often held up for months as the insurance company investigates a claim. After two years, benefits are typically paid out much more quickly.

While suicide is forbidden, the matter of MAID (Medical Assistance in Dying) is another story. As maid is not considered suicide by Canadian government., insurance companies on this opinion and will still pay out a death benefit for an insured who has gotten made.

It is a prerequisite that a patient goes through the legal process to get approved and have the procedure carried out. MAID has only been legal in Canada for 10 years so it is possible that this rule will change in some capacity as time goes on. As of the writing of this article, benefits are still paid out when a person goes through with MAID.

There are many small details in Life Insurance policies that can make a huge difference. These are just a few small examples. The key is to ensure you are working with a broker who understands these details and understands your needs. Brokers have a mastery over the minutiae so that you don’t have to.

Reach out to Citron Insurance with any questions. There is never a cost or obligation associated with consultations.

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