Life Insurance Payout Principle
In life insurance, the principle of indemnity does not strictly apply. Unlike general insurance, having multiple life insurance policies does not limit the payout to the highest or lowest sum assured, nor does it typically involve the concept of contribution between insurers.
Instead, upon the death of the insured, the beneficiaries are entitled to receive the full sum assured from each policy held, regardless of the number of policies or the total coverage amount.
Calculating Total Claim Amount
The insured had two life insurance policies:
- Policy 1 (XYZ company): Sum Assured = \( \text{₹} 20,00,000 \)
- Policy 2 (WXY company): Sum Assured = \( \text{₹} 30,00,000 \)
Since the concept of contribution is not applied in life insurance, the legal representatives are entitled to the sum of the assured amounts from both policies.
Total Amount Payable = Sum Assured (Policy 1) + Sum Assured (Policy 2)
Total Amount Payable = \( \text{₹} 20,00,000 + \text{₹} 30,00,000 \)
Total Amount Payable = \( \text{₹} 50,00,000 \)
Therefore, the legal representatives are entitled to receive ₹ 50,00,000.
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