6. I have taken out several insurance policies covering the same risk (e.g. hospital confinement or household damage). Can I claim for the sum insured under ALL policies or just the actual expenses/losses only? Is the claim for the death benefit under life insurance subject to different rules?
An insured person is not prevented by the law from purchasing any number of insurance policies covering the same item/person for the same risk. However, for insurance policies which are based in the indemnity principle, there is normally an "other insurance" clause in the insurance policy to address these situations so as to avoid the policyholder seeking to recover more than his loss.
The “other insurance” clause will set out the liability of the insurance company where the policyholder has also purchased "other insurance" to cover the same risk. The “other insurance” clause often provides for one of three results:
- The most harsh “other insurance” clause provides that the insurance company will have no liability on the insured item/person in which the insured person has purchased other insurance (leaving all loss to be recovered from the other insurance policy).
- The “other insurance” clause may provide that the insurance company will only be liable for the loss in excess of the cover for the risk provided by the other insurance policy (also known as an “excess” provision).
- The “other insurance” clause may provide that the insurance company will only pay a pro-rata portion of the loss, with the other insurance policy.
The above are the types of “other insurance” clause commonly seen in medical, personal injury and property insurance policies (which are usually based on the indemnity principle).
“Other insurance” provisions aim to prevent the policyholder from obtaining unfair enrichment under the Common Law. In other words, the total amount of the claims payable under the "primary insurance" (the subject policy) together with the "other insurance" (the other policies) should not exceed the fair value of the repair or replacement of the insured item (i.e. the fact that the policyholder has multiple insurance policies should not enable him to recover more than his total loss or expenses incurred).
Accordingly, a policyholder can claim under all of his insurance policies. Depending on their terms, however, the claims may be adjusted according to the express provisions under the "other insurance" clauses in each of the policies.
Example : You have taken out two medical insurance policies in which the sum insured for medical expenses is $10,000 for each policy (aggregate sum insured is $20,000). If your medical bill is $15,000, you can only obtain $10,000 from one of the policies and get $5,000 from the other one. (You cannot obtain $10,000 from one insurance policy and another $10,000 from the other insurance policy, because this would be more than your medical bill of $15,000).
The position as regards life insurance policy is different (as this is contingency insurance). Here, if there is nothing untoward (e.g. fraud or misrepresentation), the insurance company will be liable to pay in full regardless of there being other policies under which claims could also be made.