Page 44 - The Insurance Times April 2025

Insurance Claim

Your life insurance claim may be rejected if you

take a new plan without declaring the ones you

already have, says SC

Y ou already have a life insurance policy (A). You buy an- grounds of misrepresentation or concealment of material
other life insurance plan (B) without disclosing to them
facts.”
that you are already covered under plan A. In one of its re-
cent verdicts, the Supreme Court of India ruled that this could Material facts are not standardised, vary from
be valid grounds for the issuer of your policy B to reject any case to case
claims you make to them. However, the court further noted that the materiality or
significance of such facts has to be decided on a case to case
According to the bench of Justices B.V. Nagarathna and
basis.
Satish Chandra Sharma, “An insurance is a contract uber-
rima fides. It is the duty of the applicant to disclose all facts In this case, the court ruled in favor of the appellant, since
which may weigh with a prudent insurer in assuming the the amount for policy disclosed (Rs 40 lakh) was far more
risk proposed. These facts are considered material to the than the value of term plans not disclosed (Rs 2.3 lakh).
contract of insurance, and its non-disclosure may result in However, it certainly serves as a reminder that you must
the repudiation of the claim.” disclose all important facts to your insurer, while buying an
insurance policy.
For the case in concern, the appellant's father had pur-
chased a life insurance plan from the respondent, namely According to Mohak Marwah, Senior Manager, Growth
Exide Life Insurance for Rs 25 Lakhs. Following his father’s Advisory, Aranca, an applicant’s history with other insurers
death, when the appellant’s presented his claims to Exide helps the insurer assess risk, determine eligibility, and price
for benefit payout, his claim was repudiated, or rejected. premiums for the prospective policyholder appropriately.

The reason? Exide Life Insurance noted that the appelant’s But why is this disclosure so important in the first place? This is
father had not disclosed all his other life insurance policies, because, as Surinder Bhagat, Vice President, Special Lines EB
and brought to their notice only once policy he had taken LAP, Prudent Insurance Brokers explains, “every individual has
from Aviva Life Insurance. This was, in their view, “non-dis- a defined Human Life Value (HLV), which represents the maxi-
closure of material facts”, and hence, valid grounds for claim mum coverage insurers can offer. Failure to disclose or inaccu-
rejection. rately disclosing existing policies at the proposal stage may even
result in over-insurance on part of insurance companies.”
Ravi Bhadani, Partner at SNG & Partner Advocates & So-
licitors agrees, “The rationale of life insurance is that it is a Experts also underline that life insurance companies assess
protection from economic loss, and the sum insured or their coverage for an individual to gauge their total finan-
amount of risk cover should align with the insured’s lifetime cial exposure. If an applicant omits a large existing life in-
value or financial exposure. Insurers assess the overall risk surance policy, insurers may argue that they lacked full in-
exposure before determining the coverage amount. Failure formation to evaluate risk. However, if an insured person
to disclose can lead to claim denial or policy cancellation on has taken out small sum-insured policies that were uninten-

40 April 2025 The Insurance Times