Are You Allowed to Have Two Insurance Policies?
Unpack the realities of holding multiple insurance policies. Learn if it's allowed and how to understand their interaction for effective coverage.
Individuals often wonder if they can hold more than one insurance policy. In most instances, having multiple insurance policies is permissible. Understanding how these policies interact is essential when an individual is covered by more than one.
Permissibility of Multiple Policies
Holding multiple insurance policies is generally allowed, though implications vary by type. Policies typically fall into two categories: indemnification and fixed-benefit.
Indemnification policies, such as health, auto, or home insurance, reimburse the policyholder for actual financial loss. Collecting more than the actual loss from combined indemnification payouts is considered insurance fraud.
Fixed-benefit policies, like life insurance, pay a predetermined sum upon a specific event, regardless of actual financial loss. With these policies, it is permissible to have multiple policies and receive payouts from each, as the benefit is not tied to indemnifying a specific loss.
Situations Leading to Multiple Coverage
Several legitimate situations can lead to an individual possessing more than one insurance policy covering similar risks.
Health Insurance: Dual employment often results in spouses each having employer-sponsored plans. College students might be covered by both their parents’ plan and their school’s plan. Individuals may also hold primary coverage alongside supplemental policies, such as Medicare with a Medigap plan, or an employer-sponsored plan with a spouse’s plan.
Auto Insurance: An individual might drive a company car covered by the employer’s policy while also maintaining personal auto insurance for their own vehicle. In multi-driver households, separate policies for different vehicles, or even overlapping coverage on the same vehicle, may occur.
Home/Property Insurance: Overlaps can arise when someone owns a second home with a distinct policy, or when a renter has their own renter’s insurance in addition to the landlord’s property policy.
Life Insurance: Individuals may acquire multiple policies throughout their lives, perhaps from different employers or as individual policies purchased at various life stages to address evolving financial needs.
How Policies Coordinate Coverage
When multiple indemnification policies cover the same loss, specific mechanisms dictate how they interact to pay claims. Coordination of Benefits (COB) is a common process, primarily in health insurance, determining which plan pays first (primary) and which pays second (secondary).
For children covered by both parents’ health plans, the “birthday rule” often applies, designating the plan of the parent whose birthday falls earlier in the calendar year as primary. An individual’s own employer-sponsored plan is primary over a spouse’s plan, and their own plan is primary over a parent’s plan if they are an adult.
Subrogation is another principle, frequently seen in auto and property insurance, where one insurer pays a claim and then seeks reimbursement from a legally responsible third party or another insurer. This process allows the insurer to recover costs from the at-fault party’s insurer, often including the policyholder’s deductible.
Most indemnification policies include anti-duplication clauses, preventing policyholders from receiving more than the actual loss by combining payouts from multiple policies. Pro-rata or contribution clauses dictate that when multiple policies cover the same risk, each insurer will pay a proportionate share of the loss based on their coverage amount. Fixed-benefit policies, such as life insurance, are exempt from these coordination rules, as they pay a specified sum.
Making Claims with Multiple Policies
When filing a claim involving multiple insurance policies, contacting all relevant insurers is a key first step. Even if one policy is clearly primary, informing all insurers early can streamline the process.
The primary insurer typically processes the claim according to its terms and coverage limits first. Once the primary insurer has processed its portion, the secondary insurer evaluates the remaining balance.
This often involves reviewing the Explanation of Benefits (EOB) from the primary insurer to determine outstanding costs eligible for coverage under the secondary policy. Providing comprehensive information to both insurers is essential, including details about the other active policy.
Necessary documentation, such as medical bills, repair estimates, or police reports, along with the primary insurer’s settlement summary or EOB, must be submitted to the secondary insurer. The typical flow involves the primary insurer paying its share, followed by the secondary insurer covering eligible remaining costs. Policyholders should contact their insurers directly for clarification on coordination procedures or claim processing.