Insurance: coverage under many policies

Certain insurances work on the principle of indemnity. They include fire insurance and health insurance.

According to this principle, the policyholder can only be compensated up to the amount of the loss. The policyholder cannot claim for more than the actual loss, even if he or she had taken up insurance to cover a larger amount, in one or several insurance policies.

For example, if a person took up several health insurance policies that pays a total benefit that is higher than the loss of wages (during a period of disability), then there is the risk that the policyholder will delay returning to work, as he will get a higher benefit by staying at home.

To prevent this situation, the insurance company will ask the policyholder to state if he is insured under other policies. This is to prevent over-insurance for disability benefit.

In the payment of a claim, the insurance company will also ask if the policyholder is claiming under other policies.

This principle of indemnity does not apply to life insurance and personal accident insurance. A policy can insure for an unlimited amount for loss of life or for personal injury.