Throughout my career I've frequently been coming across some misconceptions among common people, regarding insurance claims, who thinks that, having an insurance against loss or theft or any other insured perils or risks is the only criteria for getting paid in full for the financial loss they suffer towards their homes, cars or properties.
You probably may have this misconceptions. Let me clarify this with some examples. Let's say, you've recently purchased a couple of personal insurance policies and being enthusiast, one of your close friend has bought a couple of homeowners’ insurance policies too in order to get double benefits. Now, suppose in a car accident, you've broken one of your legs and naturally you've claimed and got paid in full by both the insurers.
And coincidentally, your friend's house has burnt down by fire and he's supposed to lodge a claim to both his insurers separately. Well, what do you think about it? Will he get paid in full by both the insurers? Unfortunately not. And obviously both the insurers would refuse to pay more than one claim.
But why is this? Because property insurance(including health & homeowners insurance) is subject to principle of indemnity(compensation) and contribution. Whereas personal insurance and life insurance are usually not controlled by contracts of indemnity and hence there's no contribution among insurers.
Just like the principle of indemnity prevents an insured from recovering money from both the insurers, so it prevents recovery of claims in full from more than one insurer. In this case of ‘double’ insurance, both the insurers, covering the same interest/property for the same risk, must share the claims proportionately.
Now what are the principle of indemnity & contribution and their exact role in determining a claim judiciously. As you know, all insurance policies, except life insurance and personal insurance policies, are the contracts of indemnity. The main objective of having these provisions, is to place the insured or policy-holder in almost the same financial position(as before the mischance) after suffering a loss. Otherwise, it would go against the public policy to allow an insured to make profit out of the happening of loss/damage. And there would be a tendency of getting an over-insurance.
Similarly contribution is defined as the insurer's right to call upon the other concerned insurers to contribute, equally or proportionately, for the same loss and the doctrine of contribution supports the principle of indemnity or principle of equity under common law. Whereas there's no contribution(as per contract) in case of personal accident and life insurance policies.
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