When you’re applying for health, car, home or life insurance, you’re almost always asked if you already have insurance for those things. This might seem like an unnecessary query at first glance, but there are many good reasons that insurance companies ask this question. Knowing why insurers want to know about your other coverages will also help you to navigate the insurance process more smoothly and obtain the best insurance you can. That being said, this article will go through the reasons behind this question, how it factors in to your premiums, and what role it plays in protecting you and the insurer.
1. To Prevent Over-Insurance
The reason insurance companies ask you about other insurance is because they do not want to over insure people. Over insuring is when there are over policy combined coverage which exceeds the insured item or the coverage needed. To give an example, suppose you maintain two car insurance policies in the coverage of the same car, and it covers for the amount of $40,000 in each policy, so the total coverage will be $80,000—much more then the value of car.
It is not difficult to see how this is a problem because if you are sued, the insurer can only pay up to the actual value of damage or loss how many insurance policies you have. However, insurance companies ask about your current coverage so as to avoid insuring something more than it should and there was a good chance your policies covered the right amount.
2. Any of the following to determine Coordination of Benefits ( COB ):
When it comes to health insurance, the issue of other coverage is important because it helps determine how more than one policy will play together to pay your medical bills. This process is known as “Coordination of Benefits” (COB).
If you have more than one health insurance policy, the insurers will combine to see which policy pays first (or primary) and which pays second (or secondary). This will help to make sure your medical expenses are paid for without you having to pay out of pocket and to avoid paying multiple times. Say you have both employer-sponsored health insurance as well as an individual policy; employer-sponsored plan may be primary coverage, and the individual policy would be secondary.
COB minimizes the claims and makes sure if you’re getting reimbursed you’re not getting reimbursed any amount greater than actual costs, fair and not fraudulent.
3. To set premiums and decide to have or not have coverage.
The information about what coverage you already have on you is also used to assess you by the insurance companies and determine what you should pay in your premium. Insurers determine your premium as they estimate the claim number you will file and its related costs. If you already have some coverage, it could mean that you’re less likely to file a claim, and that could mean you’ll have lower premiums.
If you are applying for auto insurance, but you already have comprehensive coverage via your car manufacturer’s warranty, for instance, that insurer may reduce your premium, as you are presumably at a lower risk for particular claims.
Meanwhile, if you have no other insurance or multiple holes in your current coverage, the insurer can consider you high risk, and therefore charge you more.
4. To Avoid Fraud
One of the things insurers hold dear is not being used as a target for insurance fraud and one way of doing that is asking about other existing policies. In most cases, applicants endeavor to file fraudulent claims for the same loss under multiple policies by failing to disclose other insurance policies. They might include situations where someone seeks to bring a damages claim on the same incident against several different insurers, retrieving more money than the true loss.
It was how insurance companies protect themselves from fraudulent activities and how they make sure no claims are impossible and had justification. If you fail to disclose existing coverage, your policy may be cancelled or you may be sued.
5. It is to ensure that proper claims payment is achieved
Sometimes having several insurance policies presents a bit of trouble when you try to make a claim. When you file a claim, the insurer wants to know if there were other policies in place so that the delayed or confused with the payment. If you have multiple policies, each insurer needs to decide how much of that claim they are responsible for. Without this information, which can be (and often is) used in support of losing claims, there could be disagreements between insurers causing delay of settlement or payment denials.
Say, if you have collision and health insurance for example — if you’re in an auto accident, the insurers have to decide which will pay medical, which will pay to repair the car. The insurer could in error either deny your claim, or falter in making payments, without you knowing that you have other insurance.
6. To satisfy Insurance Regulations
There are legal or regulatory requirements that insurance companies have to ask about other insurance coverage. These rules will vary according to the type of insurance and the jurisdiction, but typically exist to be sure that the insured are fully protected and that the insurer does not carry risks that should not be undertaken.
In many states, car insurance laws demand a bare minimum level of liability insurance, while insurers might also quiz about other policies to be sure they meet these standards. A source of overpayment and inequitable coverage exists in health insurance through policies that may require the coordination of benefits with other policies.
7. to provide a comprehensive way of covering their ideas
If you have existing insurance policies you’ve already disclosed this to the other insurance company, otherwise you will most likely not have comprehensive coverage. For example, if you’re applying for a new life insurance policy, then knowledge of your previous coverage can help the insurer craft the new one to close any gaps in your protection.
An insurer may extend coverage without knowing what type of plan you are on, which will cause you to pay for two types of plans. The insurer can provide you with a more personalized solution that adds to your existing coverage by sharing information about the type of coverage you already have.
8. Subrogation rights are to be determined
When one party has caused the damage (such as in an auto accident) and insurance companies have reimbursed the other party for his loss, insurance companies may use the right of subrogation to recover those losses from the party responsible. If you’ve got more than just one insurance policy, the insured will need to tell each insurer about the others to determine if the insurer can file a subrogation claim against the other insurers. That way, the insurer of the responsible party, and not yours, is left footing the bill.
Conclusion
Insurance companies are extremely interested in the question of whether you have other insurance coverage. It prevents overinsurance, assures proper coordination of benefits and enables insurers to put in place fair premiums. Besides, it also helps to prevent fraud, fast payment of claims, and regulatory compliance. By providing your insurer with accurate and complete information about your existing insurance coverage, you help them give you the best possible service AND you protect both parties from having to deal with potential risks.
When the next person asks you about your existing insurance policies, making clear that this isn’t just about ‘cahcing’ information is about making sure you are properly covered with regard to the insurance coverage necessary while continuing to provide fairness and efficiency with the process.
