Can you hold multiple life insurance policies?

My friend passed away in an accident in January. He had multiple life insurance policies. While a few insurers have honoured the claims, one recently purchased policy has been rejected on the grounds that the earlier policies were not disclosed in the proposal form. Is this a valid reason for claim rejection under Irdai rules?

- Name withheld on request  

I’m sorry to hear about your friend’s tragic passing and the difficulties his family is facing with the claim rejection.

Let’s look at this from an insurance regulatory and underwriting perspective. When someone applies for a life insurance policy, they enter into a contract based on the principle of utmost good faith, which requires full disclosure of all material facts. This includes details of any existing or recently lapsed life insurance policies.

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Why is this disclosure crucial? Insurers assess the total life cover a person is eligible for using the Human Life Value (HLV) formula, which factors in age, income, liabilities, and existing cover. 

For instance, if the HLV is ₹2 crore and the individual already has policies totalling ₹1.5 crore, the insurer may only offer an additional ₹50 lakh. Failure to disclose existing policies can distort this assessment and result in over-insurance, increasing the insurer’s risk exposure.

In such cases, if the insurer discovers the non-disclosure after a claim is filed, it may consider it a material non-disclosure, even if the cause of death is unrelated. This is especially significant if the policy is less than three years old.

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Section 45 of the Insurance Act, 1938, offers some protection after three years of policy issuance. However, since your friend’s policy was issued less than three years before his death, the insurer has the right to investigate and potentially reject the claim if misrepresentation or non-disclosure is established.

That said, you can appeal the decision if the non-disclosure was unintentional. For example, if the proposer was unaware of the requirement or if it was an oversight by the insurance advisor. File a detailed representation with the insurer’s grievance redressal cell, explaining the circumstances and justifying the total HLV. Providing income proof and other financial documents can strengthen the case.

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Life insurance is a commitment to safeguard a family’s financial future. Complete disclosure, including all existing policies, health conditions, and habits, is vital to avoid complications later. Better to be transparent upfront than to face rejections at the worst possible time.

Shilpa Arora is co-founder & COO of Insurance Samadhan.