What is Called Double Insurance?

Double insurance occurs when an individual procures two insurance policies for the same property from one or more insurance providers. There are two types of double insurance: Unintentional and intentional double insurance. Either of these can cause disputes among the insurance providers and delay the claims process unexpectedly.

The Indian insurance laws neither prohibit nor discourage double insurance. The occurrence of double insurance in insurance law is mentioned under Section 34 of the Indian Marine Insurance Act defining double insurance in marine insurance statutorily. However, individuals may unknowingly purchase double insurance and create issues over the payout.

The following aspects must be met to qualify as double insurance:

Multiple Policies:

Double insurance entails securing coverage for a specific subject matter through either multiple insurance providers or the same insurance provider, issuing two separate policies.

Consistent Insured:

The insured individual remains consistent across all policies involved. If one individual is not entitled to benefits from all policies, it does not meet the criteria for double insurance.

Uniform Interest or risk involved:

All insurance policies involved must pertain to the same interest or stake.

Concurrent Period:

The duration of all insurance policies must align, indicating simultaneous coverage.

Identical Subject:

Each policy must address the same risk or subject matter. Otherwise, it does not qualify as double insurance.

In the context of double insurance, the Principle of Contribution determines how the payment responsibilities are to be allocated among the insurance providers. This principle ensures equitable distribution of losses among the multiple insurance providers involved.

It prevents policyholders from receiving compensation exceeding the actual loss in cases of double insurance claims. Essentially, the Principle of Contribution aids in determining the proportionate liability of each insurance provider obligated to cover the loss incurred.

Conditions Involved in Principle of Contribution in Double Insurance

• Double insurance must exist.

• The subject matter should fall under General Insurance Policies.

• All insurance policies must cover the same risk or subject matter.

• All policies must be active when the claim is made.

• The insurance provider must have an insurable interest in the subject matter and suffer an actual loss.

• The policy in question must cover the incident that caused the loss.

• The overall loss must be shared proportionally among the insurance providers involved.

• If one insurance provider fully compensates for the claim, they are entitled to their proportionate share from the remaining insurance providers.

Formula to Calculate Contribution

• Contribution = (Sum insured with one insurance provider/Total sum insured) x Actual Loss

• Here is a double insurance example to simplify the concept:

• Suppose Naina holds two separate car insurance policies, one with insurance provider A and the other with insurance provider B. The coverage amounts are as follows:

• Insurance provider A: Coverage of ₹ 5 Lakhs

• Insurance provider B: Coverage of ₹ 3 Lakhs

• In the event of an accident, Naina would insure a total loss of ₹ 2 Lakhs. She claims the policy with insurance provider A and receives the full ₹ 2 Lakh claim.

However, according to the principle of contribution in double insurance, insurance provider A is entitled to claim a portion of the loss from insurance provider B. Insurance A can claim ₹80,000 from insurance provider B when calculated using the contribution formula.

To mitigate liabilities in cases of double insurance, insurance providers commonly incorporate various clauses in their policies. Insurance providers use the following clauses or a combination of them:

The Escape Clause

The escape clause, also sometimes referred to as a non-contributing or exclusion clause, states that the cover shall not be applicable if there is any other insurance provider in place. For example, if an insurance provider uses an escape clause, it means it excludes their liability to cover for the same loss. If both your insurance providers include an escape clause, both can avoid liability, and you may face major challenges at the time of the insurance claim.

The Excess Clause

The excess clause specifies that one insurance provider becomes liable only when the loss surpasses the limit of the other insurance. Simply put, the excess insurance provider pays only the amount exceeding the primary insurance provider's coverage limit. This clause aims to enhance coverage for the policyholder without duplicating the primary insurance provider’s coverage and to ensure policyholders do not receive more than the total amount of their loss.

The Notification Clause

The Notification clause mandates that the policyholder must inform the insurance provider if they have the same risk covered by another insurer. Failure to do so may absolve the previous insurance provider from liability. It is crucial to note that written notice is mandatory and verbal communication is considered insufficient in this case.

This clause ensures the secondary insurance provider is aware of the primary coverage to apply liability exemption or escape clauses effectively in case of a loss. It outlines the conditions for providing notice, including the timeframe and required information. Non-compliance to set conditions may lead to the secondary insurance provider denying coverage or reducing the settlement amount.

The Rateable Proportion Clause

The Rateable Proportion clause allows insurance providers to address partial liability effectively. Under this clause, an insurance provider covers only a portion of the loss if any other policy also covers the same risk. It mandates insurers to share the loss proportionately based on what they would have been liable for if there had been only one policy.

This prevents policyholders from receiving more than the full amount of their loss despite having multiple policies covering the same risk. It also promotes cooperation between insurance providers and prevents over-insurance and double recovery.

Most insurance companies include an ‘Other Insurances’ clause in their policies to minimise liability in cases of double insurance. While policyholders can generally claim their losses from any insurance provider, such clauses are employed by insurance providers to restrict the application of the double insurance concept and contribution principle.

In India, insurance companies adhere to standardised policy wordings approved by the Insurance Regulatory and Development Authority of India (IRDAI). The IRDA also regulates and monitors the use of excess clauses in insurance policies to ensure fair and transparent practices in the insurance industry.

After understanding the details of the exemption clauses comes the important question of what happens when both policies contain similar clauses. Since this can be a confusing situation, here are the detailed guidelines on what can be done in such scenarios:

Dual Excess Clauses :

If both policies have excess clauses relieving them from liability, the loss is evenly split among all insurance providers.

Dual Escape Causes:

If both policies contain escape clauses absolving insurance providers from liability, the loss is divided equally among them.

Dual Notification Clauses:

If both policies require written notice for previous or subsequent policies on the same risk, failure to notify the second insurance provider releases them from liability. However, the first insurance provider remains liable in the absence of another valid insurance.

Dual Rateable Proportion Clauses:

Similar to dual excess or escape clauses, the loss is proportionally shared among all insurance providers.

While having two insurance policies may seem like a smart strategy, especially outside the concept of Life Insurance Policies, it often fails to enhance the value of insurance coverage for policyholders. This is primarily due to the fact that multiple policies do not allow policyholders to receive compensation exceeding the actual loss incurred. This renders any additional policies economically impractical.

• Several factors contribute to the impracticality or lack of profitability of double insurance policies. These include the following:

• The possibility of disputes between the policyholder and insurance providers can result in delays in the claims processing, negating any perceived benefits of having multiple policies.

• Regardless of the number of policies held, the maximum claimable amount remains capped at the actual loss incurred. Moreover, the incremental value of the insurance coverage does not increase for policyholders.

• Maintaining multiple policies entails the payment of higher premiums than is usually necessary. This results in unnecessary financial burden due to expenditure.

• Navigating the claims process becomes more tedious with multiple policies at hand. While claiming against a single policy is straightforward, handling claims across multiple policies prolonged the process and demanded additional effort from the policyholders.

• Engaging in litigation due to disagreements can lead to prolonged legal battles and increased litigation costs. In cases where policies conflict, insurance providers may be compelled by the law to pay the claim amount to the court. This further delays the payout process.

To conclude, although the concept of double insurance may appear advantageous at first glance, its practical implications are often inefficient and uneconomical. To avoid such situations, it is crucial to cross-check your insurance details and terms and conditions before making a purchase.

When investing in an insurance policy, be it a marine insurance policy or a specific cargo insurance policy, it is essential to invest in a reliable insurance provider like Tata AIG. With the 24/7 Toll-Free Number, 1800-266-7780, all queries related to insurance terms or details like exclusions under marine cargo insurance or the comprehensive characteristics of fire insurance are answered promptly.

Does having multiple insurance policies increase payout?

No, purchasing additional insurance coverage for the same asset does not result in higher claims. The total payout is limited to the real worth of the asset insured under the policy.

If multiple insurance policies are not disclosed, what is the policyholder entitled to under consequences?

Suppose insurance providers cannot agree on claim payments. In that case, the policyholder may only be entitled to the maximum amount of loss accused as per the terms and conditions of the insurance policy.