How Does Double Insurance Coverage Work?

Double insurance means that the same person benefits from two separate policies at the same time. The most common example would be where a couple each had a health insurance policy that provided "policyholder and partner" coverage.

Legal Consequences

• There are three main legal principles that may affect the handling of payouts to people benefiting from double insurance. Indemnity means that an insurance payout should leave a person in the same position as if the covered event did not take place, neither losing out financially nor profiting. Unjust enrichment means that a person should not benefit from something provided by another without providing something reasonable in return. An insurance contract will often bar unjust enrichment. Such a clause would allow a court to rule against a person who was seeking to benefit from two polices at once. The principle of contribution means that an insurer who pays out on a claim and discovers another insurer has also covered the same event for the same person is entitled to seek a contribution towards the costs from the second insurer.

Practical Application

• In the event a person claims on two policies for the same event, the second insurer would be able to cite indemnity and refuse to pay out. The insurers would then split the payout costs between them. If the policyholder was considered to have intentionally attempted to benefit by making multiple claims, it could affect his chances of getting insurance in the future, and the rates he pays. The precise sequence of events that leads to the two insurers splitting the payout costs will depend on the local jurisdiction.

Reinsurance

• An insurer who offers coverage to a policyholder may take out reinsurance. This is a policy with a specialist insurer where the risk covered is that the original insurer will have to pay out on the original policy. Usually the reinsurance policy will have a small premium and only payout a proportion of the claim: this thus has a cost for the original insurer but reduces its risk. Reinsurance does not count as double insurance and has no consequence for the legal relationship between the original insurer and the original policyholder.

Double Indemnity

• Double insurance should not be confused with double indemnity. This is a policy condition that provides double the usual payout if the covered event takes place in specified circumstances. The most common example is a life insurance policy paying double the usual amount if the death is caused by an accident.