Their plan was foiled by officials of the firm who found that the claimant was alive.
The woman's husband Syed Shakeel Alam, a real estate agent who allegedly submitted "fake" documents declaring that his policy-holder wife had died, is on the run.
A police official said Alam sought Rs one crore insurance from the firm in June, saying his wife had died, a Banjara Hills police station official said.
Syed Shakeel Alam had taken the insurance policy coverage of Rs 1 crore in his wife's name in 2012 and used to pay Rs 11,800 towards the annual premium.
However, the insurance company official found that the policy-holder woman was alive and subsequently approached the police.
A case was registered in the last week of September on charges of cheating and forgery under relevant sections of the IPC and the woman was arrested yesterday, he said, adding that Alam is absconding.
K Srinivas said another private insurance company had also lodged a complaint accusing the couple of using a similar modus operandi in order to claim insurance policy amount and that case is also under investigation.