Picture this. Say you already have a life insurance policy (A). You buy another life insurance plan (B) without disclosing to them that you are already covered under plan A. In one of its recent verdicts, the Supreme Court of India ruled that this could be valid grounds for the issuer of your policy B to reject any claims you make to them.According to the bench of Justices B.V. Nagarathna and Satish Chandra Sharma, “An insurance is a contract uberrima fides. It is the duty of the applicant to disclose all facts which may weigh with a prudent insurer in assuming the risk proposed. These facts are considered material to the contract of insurance, and its non-disclosure may result in the repudiation of the claim.”
For the case in concern, the appellant’s father had purchased a life insurance plan from the respondent, namely Exide Life Insurance for Rs 25 Lakhs. Following his father’s death, when the appellant’s presented his claims to Exide for benefit payout, his claim was repudiated, or rejected.
The reason? Exide Life Insurance noted that the appelant’s father had not disclosed all his other life insurance policies, and brought to their notice only once policy he had taken from Aviva Life Insurance. This was, in their view, “non-disclosure of material facts”, and hence, valid grounds for claim rejection.
Ravi Bhadani, Partner at SNG & Partner Advocates & Solicitors agrees, “The rationale of life insurance is that it is a protection from economic loss, and the sum insured or amount of risk cover should align with the insured’s lifetime value or financial exposure. Insurers assess the overall risk exposure before determining the coverage amount. Failure to disclose can lead to claim denial or policy cancellation on grounds of misrepresentation or concealment of material facts.”
Material facts are not standardised, vary from case to case
However, the court further noted that the materiality or significance of such facts has to be decided on a case to case basis.In this case, the court ruled in favor of the appellant, since the amount for policy disclosed (Rs 40 lakh) was far more than the value of term plans not disclosed (Rs 2.3 lakh). However, it certainly serves as a reminder that you must disclose all important facts to your insurer, while buying an insurance policy.According to Mohak Marwah, Senior Manager, Growth Advisory, Aranca, an applicant’s history with other insurers helps the insurer assess risk, determine eligibility, and price premiums for the prospective policyholder appropriately.
But why is this disclosure so important in the first place? This is because, as Surinder Bhagat, Vice President, Special Lines EB LAP, Prudent Insurance Brokers explains, “every individual has a defined Human Life Value (HLV), which represents the maximum coverage insurers can offer. Failure to disclose or inaccurately disclosing existing policies at the proposal stage may even result in over-insurance on part of insurance companies.”
Experts also underline that life insurance companies assess their coverage for an individual to gauge their total financial exposure. If an applicant omits a large existing life insurance policy, insurers may argue that they lacked full information to evaluate risk. However, if an insured person has taken out small sum-insured policies that were unintentionally overlooked, the insurance company will not reject a claim solely on this basis.
In case for health insurance, the situation is no different. Non-disclosure of existing policies can indicate past claims or undisclosed health conditions, which can directly influencing underwriting decisions. If an individual withholds critical medical history embedded in prior policies, insurers may reject claims under misrepresentation clauses.
Will this be a deterrent for individuals from buying multiple policies?
According to Rakesh Goyal, Director, Probus Insurance, that could very well be the case. “This could indeed deter some individuals due to concerns about increased costs or reduced coverage. Policy holders may perceive that adding another policy could lead to higher overall premiums, especially if insurers adjust rates based on the broader risk profile or overlapping coverage. Alternatively, some might fear that inadequate or incorrect disclosure of existing policies could complicate future claims, potentially resulting in delays, disputes, or even denials.”
Does the disclosure of having multiple policies impact the premium payable by you for your newly-purchased term plan?
Marwah explains that a clean claims record or past insurance relationships typically do not impact premiums or coverage unless there is a history of fraudulent activities, such as false claims or data manipulation. In other words, possessing multiple policies is no grounds for any insurer to increase your premium payable.
Narendra Bharindwal, Vice President, Insurance Brokers Association of India (IBAI) also clarified that life insurers primarily assess financial justifications rather than using prior policies to inflate premiums. In health insurance, past claims history may influence pricing, but merely holding multiple policies does not.
However, Goyal says that this could very well backfire for policy holders as well. “Disclosing a prior policy, such as Policy A, can materially affect both the premiums and the protection offered under Policy B. Insurers typically assess an individual’s full insurance history to evaluate risk, which could lead to adjustments in premium rates or coverage terms. For instance, if Policy A reveals a history of frequent claims, the insurer might increase Policy B’s premiums to offset the perceived risk, or they could impose exclusions to limit overlapping coverage.”
