According to "Final Exit" by Derek Humphry, federal law states that an
insurance company must pay off in the event of a suicide if they
insured has had the policy for 2 years.  (Except in Colorado where
it's 1 year).  If the insured commits suicide before the time period,
their premiums are to be returned to the family.

I would like to know what statute of federal law says this. 
Specifically, a friend of mine argues with me about this, and next
time it comes up, I would like to say "according to federal statute
xx.xx.xx part A, they have to pay"  Thanks in advance!

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Clarification of Question by baerana-ga on 22 Nov 2002 12:36 PST

I think what I should have asked, is, DO insurance companies have to
pay if someone commites suicide after 2 years?  (1 year in colorado)

Final exit believes they have to pay - the only time I ever discussed
it with  an insurance agent, he said no insurance companies have to
pay if someone commits suicide ever - no matter long they have had the
policy.

Final Exit says federal law says insurance companies must pay if the
policy is 2 years old, and that an insurance company can't write a
policy that goes against the law.  (Colorado is the exception - states
can make laws that are stricter than federal laws, but not less strict
than federal laws)

If it's not the law that insurance companies have to pay off on
suicides, why would they ever? Obviously, they don't want to pay if
they don't have too?

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Clarification of Question by baerana-ga on 22 Nov 2002 12:37 PST

PS - since this seems more complicated that I initially expected, I am
raising price.  Thanks!!

I could not find a federal law or statute that described this, but I
did learn that it is referred to as a "Suicide Clause"

I did find a Kentucky Statute here:
"304.19-140 Suicide clause.A credit life insurance policy may include
a provision excluding or denying a claim for death inthe event of
suicide within six (6) months (twelve (12) months for contracts of
more than three(3) years) after purchase of the policy.Effective:July
15, 1980History:Created 1980 Ky. Acts ch. 363, sec. 4, effective July
15, 1980."
www.lrc.state.ky.us/KRS/304-19/140.PDF

I don't believe that it is a Federal statute, otherwise I would think
that each state would have the same term, and as you described
Colorado is 1 year, and as above, Kentucky is 6 months to three years.

Hope this helps!

Sorry I meant 6 months to 1 year (12 months). 12 months being for
contracts of more than three years.

I've got a copy of "Final Exit" here, and I think I've found the
relevant portion. It concerns a case in Colorado in which a widow
argued in court that her husband's death should not be considered
suicide, as the primary cause of his death was still terminal illness.

In this case, the insurance company actually won in court, as the
policy was new. The references to the one and two year provisions for
the suicide clause appear to refer only to the insurance policies, not
federal law, and the reference to Colorado seems to apply only to the
specific case used as an example. If there is a federal law governing
this, I can't find reference to it in the book.

This interpretation jibes with the "Suicide Clause" section on this
page:

http://life.insurance.com/insurance_options/life/life_choose_read_policy.asp

Search terms:

"suicide clause" life insurance

Well, I tried. I really tried.

It appears that there is no actual federal statute, but rather a
"model law" instituted by the National Association of Insurance
Commissioners.

Apparently, federal regulation is a big sticking point for insurance.
Essentially, tax code, business practices, etc. can be regulated by
federal law, but the actual business of insurance is regulated state
by state.

There is, however, a National Association of Insurance Commissioners
(NAIC), which makes very strong recommendations to state regulatory
agencies, which appear to include issues such as suicide clauses, etc.
Unfortunately, I hit a brick wall as far as finding these source
documents. Most of the NAIC's documents aren't freely available
online.

Gory details of my search follow, for anyone interested in pursing
this further.

First, I'd like to apologize for COMPLETELY MISSING this section in my
copy of Final Exit. Yep, you were right.

"Western States Life Insurance refused to pay his widow the $25,000
benefit on the policy because his death was by suicide within the one
year time limit specified by Colorado law."

I can't imagine how I didn't notice that. 

The existence of the federal two-year limit is evidenced by this page,
found by a search on -"suicide clause" -:

http://www.insurancemachine.com/lifrepll.htm

From this page:

"When a life insurance policy is replaced, there are almost always two
disadvantages: first, there is the creation of a new suicide clause
which begins with the writing of the new policy. If you have owned an
insurance policy for over two years, it would pay off in the event of
a suicide. The new replacing policy, however, will not cover suicide
until the new policy has been in force again for over two years."

A search on - "life insurance" regulation limitations - resulted in
this page:

http://law.freeadvice.com/insurance_law/life_insurance_law/insurance_regulation.htm

This page says that insurance companies are generally regulated by
individual state law, and there is no one governing regulatory body.
However, to quote from them:

"To coordinate the regulatory processes for each of the 50 states and
the District of Columbia, Puerto Rico and the US Virgin Islands, there
is the National Association of Insurance Commissioners, made up of the
states' insurance regulators, who do cooperate (more or less) in
developing a common form of financial statement, oversight teams, and
model laws which the states' legislatures then sometimes enact, and
model regulations which the regulators sometimes adopt."

So off to the National Association of Insurance Commissioners, whose
website at http://www.naic.org/ contains a PDF FAQ at this page:

http://www.naic.org/pressroom/fact_sheets/faq.pdf

From this booklet:

"Why is insurance regulated?
Government regulation of insurance companies and agents began in the
states more than 100 years ago for one overriding reason—to protect
consumers. State regulators’ most important consumer protection is to
assure that insurers remain solvent so they can meet their obligations
to pay claims. States also supervise insurance sales and marketing
practices and policy terms and
conditions to ensure that consumers are treated fairly when they
purchase insurance products and file claims."

Note the focus on state regulators, which adds credibility to the idea
that there is no actual federal regulation.

Here's another reason I'm not finding anything, from this page:

http://www.raanet.org/policyupdate/federal_regulation.html

"The Issue.  Debate over whether federal or state-by-state regulation
is most appropriate for the insurance industry has surfaced
periodically over the past 50-plus years. Following passage of the
Gramm-Leach-Bliley Financial Services Modernization Act of 2000,
regulators and industry once again are reviewing alternatives to
achieve greater uniformity and efficiency in the regulatory process.
Direct federal regulation is one option; another is “national”
regulation, which would entail state-based regulation with an optional
national chartering system."

And more, here:

http://www.law.cornell.edu/topics/insurance.html

"The McCarran-Ferguson Act, broadly speaking, gives states the power
to regulate the insurance industry.  While state insurance statutes
override most federal laws, some portions of federal law (like federal
tax laws) are always commanding.  Therefore, when researching whether
a particular law governs, a good rule of thumb is to ask whether the
inquiry is related to the "business of insurance" (where state law
governs), or whether it is related to peripherals of the industry
(labor, tax, securities - where federal law governs)."

So, it looks like there really is probably no federal law, but that
state law is generally modeled on recommendations by the NAIC.

Here's the Colorado law, in case you're interested:

"10-7-109. Suicide no defense for nonpayment.
  The suicide of a policyholder after the first policy year of any
life insurance policy issued by any life insurance company doing
business in this state shall not be a defense against the payment of a
life insurance policy, whether said suicide was voluntary or
involuntary, and whether said policyholder was sane or insane. Nothing
in this section is intended or shall be construed to apply to any
accident insurance policy insuring against accidental death or death
by accidental means or to those parts or provisions of any life
insurance policy insuring specifically against accidental death or
death by accidental means."
 
Sorry I couldn't give you a definitive answer.