What occurs if the insured dies by suicide within the first two years of the policy's effective date?

When a policyholder dies by suicide within the first two years of the policy's effective date, the standard provision in most life insurance policies is that the insurer will refund the premiums paid, typically without interest. This provision is designed to discourage individuals from purchasing life insurance with the intent to commit suicide shortly thereafter, as it provides some protection for the insurer against potentially fraudulent claims.

In this situation, the intent is to uphold the principle of insurability and ensure that the life insurance policy is not being exploited for financial gain shortly after its inception. The return of premiums acknowledges the payment made by the insured while not providing the full benefit under the policy, which is consistent with protections typically found in insurance contracts relating to suicide during the contestability period.

Understanding this provision is important as it highlights the balance insurance providers seek between fulfilling their obligations to policyholders and protecting themselves from potential misuse of the insurance system.