Suicide is defined as death caused by self-directed injurious behavior’s with the intent to die as a result of the behavior’s as defined by Institute of National Mental Healthy.
A suicide clause is a provision in most insurance policies that states that the policy will be void if the policyholder commits suicide within a specified period following the policy start date. This period is usually two years. The Diaspora Funeral Cash Plan policy excludes any claim arising as a result of suicide (whether sane or insane) during the first 24 (twenty-four) calendar months from the date of commencement or reinstatement of the policy.
A suicide clause offers insurance companies a way to guard against situations in which an emotionally distressed policyholder purchases a high value policy and commits suicide so that their beneficiary can receive a considerable death benefit. In a similar vein, knowing that their beneficiary would not receive any benefits may deter the policyholder from committing suicide.
A waiting period is the period during which you cannot claim on your policy despite the policy being active and your premiums paid. Insurers impose waiting periods on all or some benefits to prevent moral hazard and anti-selecting against the insurance company.
Moral hazard refers to behavioral changes that might occur and increase the risk of loss when a person knows that insurance will provide coverage. When a person can avoid the potential consequences of a risk, their actions and attitude change and there is a greater likelihood of a moral hazard. With insurance, moral hazard can lead people to take bigger risks or incur larger costs than they otherwise would. If one is insured, then one might become reckless.
Anti-selection is a term that is often used in conjunction with adverse selection. It is defined as an increase in the chance for a person to take out an insurance contract because they believe their health risk is higher than what the insurance company has allowed for in the premium amount. It is the phenomenon that bad risks are more likely than good risks to buy insurance. An example of this would be if you knew one of your parent’s was terminally ill and you took out funeral insurance that included cover for your parent in order to ensure his or her funeral was covered. As waiting periods reduce anti-selection, they will also reduce the premium you pay for your cover.
The main difference between the two concepts is the timeframe: A moral hazard happens after the terms of the transaction have been agreed upon, while Anti selection usually occurs before the agreement.
Waiting Periods on Accidental, Natural Death and Suicide Death
- Natural causes
The waiting period of deaths from age or illness can be anything from six to twelve months from the time the policy is active. The reason why there is a waiting period on natural death is that someone may only want to take a policy when they know they are sick and dying. This is done to protect paying clients as well as to sustain the Insurance Company. With the Diaspora Funeral cash plan, you start benefitting from as soon as 3 months.
This can be anything up to 24 months. Some Funeral policies do not cover suicidal death as it is considered a moral hazard. One may decide to end their lives knowing they have taken a policy. The reason why waiting period on suicidal death is longer is because it can be avoided compared to accidental death and natural death. No one choose to die from an accident or to get sick, but with suicidal death one has the option to kill or not kill themselves. Generally speaking, suicide death is something that society views as a taboo and insuring suicidal death without a waiting period will be like encouraging and supporting this moral hazard and going against society belief. The Diaspora Funeral Cash Plan however covers suicidal death and has a waiting period of 24 months.
- Accidental death
There is typically no waiting period for deaths from accidents. However, some Funeral Companies may still impose a waiting period on accidental death. With the Diaspora Funeral Cash Plan, you qualify immediately for full cover if death is due to an accident.
Cases and Articles of Anti selection and Moral Hazard
SA syndicates take out policies for people and then kill them
Can I take a funeral policy only for my parents?