- Date : 06/08/2023
- Read: 5 mins
It is perfectly legal to buy and hold more than one life insurance policy. Your beneficiary can rightfully claim from all the life insurance policies you hold in the unfortunate event of your death. Multiple policies offer an extra level of protection that a single plan might not necessarily provide you.
In times of crisis, having a safety net becomes crucial to ensure the well-being of yourself and your loved ones. Consider recent incidents like the devastating floods in Himachal and Punjab or the tragic Odisha train accident. Such events remind us of the importance of being prepared for the unexpected. One way to enhance preparedness is by having multiple life insurance policies.
While the idea of obtaining 2 life insurance policies might seem daunting, it has become an increasingly prudent choice in the current scenario. The Insurance Regulatory and Development Authority of India (IRDAI) ruling permits life insurance companies to issue multiple policies to the same person, even if they already hold life insurance from other insurers.
- It is legal to have and claim from 2 life insurance policies or more if certain conditions are met, such as disclosing all existing policies during application and ensuring the combined sum assured does not exceed the Human Life Value
- Holding multiple insurance policies offers benefits like hedge against death claim rejection, milestone-based protection planning, and diversification across insurers
- It is important to plan properly, prioritise needs, and keep track of all policies to make the most of the extra protection they provide
Here we take a look at how, if and when you can avail a death benefit from more than one policy.
What is a Death Claim?
In the case of Life Insurance, in the event of the insured person’s death before the end of the policy term, his or her beneficiary/nominee will receive a pay-out known as the Death Benefit.
This request for payment of the amount due in accordance with the terms and conditions of the policy by the beneficiary is known as Death Claim. In case the death was caused by an accident, an accidental death claim can be filed for appropriate sum assured, based on the policy.
Can I buy multiple term insurance and acquire death claim from all of them?
It is perfectly legal to buy and hold more than one life insurance policy and receive an insurance claim from all of these plans under the following two circumstances:
1. You have disclosed all material facts
While applying for a new policy you must disclose the previously bought policies to the insurer so that they are cognizant of your existing coverage and can help you pick out the right policy that extends your coverage in line with your personal goals. Not doing so can result in misrepresentation which can be a ground for rejection of life insurance death claim.
2. The combined sum assured of all policies does not exceed your Human Life Value
When a life insurance company receives an application for a policy, a process of risk assessment, called ‘underwriting’ begins. In medical underwriting, health related risks are assessed. In financial underwriting, insurability is assessed by reviewing the applicant’s income and existing life cover. Based on these details, which you are asked to submit when you apply, your insurers calculate your Human Life Value. The combined death claims in life insurance from multiple policies cannot exceed this amount.
What are the benefits of holding multiple insurance policies?
First, it is a hedge against claim rejection. While full disclosure is usually all that’s needed to ensure your death claim is accepted, things can go awry. The last thing you would want is your family not receiving the insurance claim in your absence. You can spread your risk by taking 2 life insurance policies or perhaps more from different insurers with different claim settlement ratios.
Secondly, it will help you with milestone based protection planning. You take life insurance based on your dependents. For important life events like marriage, birth of your children, their education, or the purchase of a house, you may want your policies to be reviewed and/or restructured. So let’s say you have to replay a 30 lakh loan in 20 years. Rather than taking a 1 crore policy for 30 years, why not take a 30 lakh policy for 20 years and a 70 lakh policy for 20 years?
Lastly, it helps you diversify across insurers. When you have multiple insurance policies, you can gain the benefit from different service providers and their coverage policies. In any case, death claims in life insurance are settled as per the contribution clause, that is when the insurance claim is higher than the sum insured for a policy. Should it happen that the sum insured is greater than the claim amount, you can file a complaint with either of the insurance companies.
Word of advice
While we can claim 2 term insurance from two companies, it goes without saying that taking more than one policy also means an additional premium. Thus, this decision has to be planned properly. Analyse your finances and prioritise your needs, taking into account the most important ones first.
Secondly, it may be cumbersome to keep track of 2 or more life insurance policies, but this is not a process you can afford to do away with.
You can purchase as many insurance policies as you want depending upon your financial needs and life situation. All you need to keep in mind is that the policies you hold contribute significantly towards your personal goals.
Know more about insurance basics here.