Can We Claim Term Insurance from Two Companies?

Term insurance is one of the best tools to secure the financial future of your family. It offers a high extent of coverage at a relatively low premium for a specific period (term). Plus, in the event of the sudden demise of the policyholder, it pays a death benefit to the nominee (beneficiary).

But what happens if you have two term insurance policies from two different insurers? You must be wondering, “Can we claim 2 term insurance from two companies?” To understand how this kind of life insurance works, explore this guide on Term insurance explained and let’s find out the answer - and more.

Can we claim 2 term insurance from two companies?

The Insurance Regulatory and Development Authority of India (IRDAI) does not limit the number of term insurance plans a person can hold. Many people opt for multiple term insurance policies to enhance the range of coverage, diversify insurer risk, or align coverage with different stages of life. So, how does it work? Let's break this down!

What Documents Are Required to Claim Term Insurance from Multiple Companies?

The beneficiary would typically need to submit a separate claim application to each insurer if the policyholder had many term insurance policies from different companies. The specific documents that must be submitted may vary depending on the insurer and the nature of the claim, but the following general set of documents is usually necessary:

• The policyholder's death certificate
• The insurer's prescribed claim form
• Policy Document/Policy Holder details, as needed
• Verification of the recipient's identity and address
• Information about the Beneficiary's bank account for claim payment
• Depending on the reason for death, medical records, hospital records, post-mortem reports, police reports and other documents, if any

The nominee is accountable for sending a notification and the required paperwork to each insurance company individually. The nominees should notify the insurance firms as soon as possible and offer accurate and comprehensive information to prevent any delays.

This would also entail answering any additional questions from the insurers right away. Therefore, it would be beneficial if you maintained a record of all policies, nominee details, and the insurer's contact information.

What are the Pros and Cons of Buying More Than Two Term Insurance Plans?

Refer to the table below to get a hang of the pros and cons of buying multiple term insurance policies: 

Pros of Buying Multiple Term Insurance Policies

• Changing Coverage Needs With Life Stages : You may have started with a ₹50 lakh cover when you were in your 20s. But as you grow old, you happen to get married, buy a house, and have children. So, with all these milestones, you may want to add another joint term insurance policy as required. A joint term insurance policy for husband and wife, covering both spouses under a single policy, ensures that financial needs will be taken care of in any unfortunate circumstances. 
• Premium Flexibility: Buying two smaller policies from different insurers can sometimes be cheaper than buying one large policy. This also gives you the flexibility to drop one later if your financial situation changes.
• Diversification of Risk: No insurer is immune to delays or disputes. Holding policies with multiple insurers ensures that a claim is not delayed or denied entirely if there is an issue with one provider.
• Tax Benefits: Premiums paid for term insurance are eligible for deductions under Section 80C of the Income Tax Act, subject to the prevailing tax regime, applicable conditions and limits. Having multiple policies can help maximise this benefit.

Cons of Buying More Than Two Term Insurance Plans

• Complex to manage: Tracking premiums, renewals, and policy details for multiple insurers can be confusing and time-consuming.
• Higher overall premium cost: Two or more smaller policies may cost more than a single high-coverage plan, depending on age and health.
• Loyalty or bundling benefits may be missed: Sticking to one insurer might get you premium discounts, better riders, or other perks.
• Underwriting may get stricter: Insurers will assess total coverage across all policies. If it is too high for your income, they may reject or reduce coverage.

In addition to your term policy, you can also invest in other tools like a ULIP. While term Insurance is meant to offer coverage, a ULIP includes both life insurance cover along with market-related investments. Both products serve different objectives and involve different factors to consider.

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Common Reasons Why Multiple Term Insurance Claims May Be Delayed

The insurer evaluates each claim separately based on the specific policy's conditions and the applicable regulations, even if the policyholder has multiple term insurance policies. Some explanations for claims delays include:

• Inaccurate details about insurance policies or other relevant details in the proposal form
• Incomplete, contradictory, and erroneous nominee data
• Inadequate supporting documentation
• Delays in informing the insurance company of the death
• Inconsistencies between the information provided when purchasing the coverage and the paperwork provided when submitting the claim

Depending on the nature of the claim, the case may require verification and investigation. Nominees can help avoid delays by keeping all policy documents in a safe place, keeping nominee and contact details up to date, and providing complete documents and accurate information to all insurers.

Disclosing Existing Policies Is Crucial

It is mandatory to reveal existing insurance coverage to the new service provider when buying a second or third term insurance policy. Apart from the legal angle, it also has an ethical one. Insurance contracts are based on the principle of 'utmost good faith'. Hiding existing coverage can lead to claim rejection, making it equally important to understand the 3-year rule in term insurance and how it affects an insurer's ability to question a policy.

For example, you have a ₹1 crore term plan with Insurer A. And you want to apply for another ₹1 crore plan from Insurer B. In such cases, you must inform Insurer B about your existing plan with Insurer A. Failure to disclose this can be viewed as fraud or misrepresentation of facts.

An applicant seeking renewal term insurance must provide accurate disclosure of life insurance coverage held by him or her and any other information required on the proposal form. The insurance company considers the information given during the underwriting process when making decisions on the terms of the insurance policy. Misrepresentation or non-disclosure of material facts will lead to problems when evaluating claims.

How Do Claims Work for Multiple Term Insurance Policies?

As long as the claim is genuine and there is no foul play, your insurance service provider, be it one or multiple, is liable to pay the sum assured. Here is how claim processing works:

• Death of the Policyholder: The nominee should notify each insurance company about the claim.
• Document Submission: Common documents required include the death certificate, original policy documents, identity or address proof of the nominee, and a properly filled claim form.
• Investigation (if needed): If the death occurs within the first two years of the policy, it is likely to be called an "early claim". In such cases, your insurance providers may investigate your case elaborately for proper verification.
• Claim Settlement: If all checks are cleared, the insurer will pay out the sum assured. Note: The nominee should submit claims to all insurers simultaneously to avoid delays.

Important Points to Keep in Mind

• Policy Lapses: A lapsed policy due to non-payment of premium is not valid. Ensure premiums are paid on time for all your policies.
• Waiting Periods and Exclusions: Some policies may have clauses related to suicide within the first year or exclusions related to risky occupations or habits like smoking. Read the fine print before buying.
• KYC and Nominee Details: Keep your contact details and nominee information updated with each insurer to avoid complications at the time of claim.
• Insurer’s Claim Settlement Ratio: While buying term plans from multiple companies, choose insurers with high claim settlement ratios, exclusions, service factors and positive customer reviews. This reduces the chances of disputes later.