Insurance claim and benefit payout has nothing to do with legality. It's a business decision on the part of the insurer. And it makes sense… why pay out a claim when someone buys a policy and then kills themselves?
Everyone is blaming "the state". The real issue is the parents wouldn't fucking let him go. His parents are the fucking demons in this case. The poor kid could not live without life support. He had no life or existence beyond machines. At which point, the parents needed to let him pass. Instead, they could not make that decision as his parents and force the Hospital to act.