Double Insurance

Understanding Double Insurance

Double Insurance happens when something valuable, like a car or a house, is insured by more than one insurance company for more money than the thing is actually worth.

Example of Double Insurance

Let’s say you have a motorcycle worth Tk. 1,00,000. Here’s how double insurance can occur:

1. You insure your motorcycle with Company X for Tk. 50,000.
2. You also insure it with Company Y for Tk. 40,000.
3. Additionally, you insure it with Company Z for Tk. 15,000.

Now, the total insurance coverage is Tk. 1,05,000 (Tk. 50,000 + Tk. 40,000 + Tk. 15,000). But the motorcycle is only worth Tk. 1,00,000. This is double insurance because the total coverage (Tk. 1,05,000) is more than the motorcycle’s value (Tk. 1,00,000).

When is it Not Double Insurance?

If the total coverage equals the actual value, it is not double insurance. For example:

1. You insure your motorcycle with Company X for Tk. 50,000.
2. You insure it with Company Y for Tk. 40,000.
3. You insure it with Company Z for Tk. 10,000.

Now, the total insurance coverage is Tk. 1,00,000, which is exactly the value of the motorcycle. This is not double insurance.

What Happens in Case of a Loss?

If your motorcycle gets damaged or stolen, you can claim money from any of the insurance companies. However, you cannot get more money than the actual value of the loss. So, if your motorcycle worth Tk. 1,00,000 is completely lost, you can get up to Tk. 1,00,000 in total, even if you have insurance coverage totaling Tk. 1,05,000.

Benefits of Double Insurance

The main benefit is that it provides extra protection. If one of the insurance companies goes bankrupt or cannot pay, you can still claim from the other insurance companies up to the value of your motorcycle.

How Insurers Share the Loss

When you have double insurance and make a claim, the insurance companies will share the payment. Each company will pay a part of the loss based on the amount they insured.

For example, if you have insurance from three companies (X, Y, Z) and your motorcycle is lost, each company will pay a portion of the Tk. 1,00,000 loss based on how much they insured.

Important Note

Double insurance only applies to insurance contracts of indemnity, like property insurance. It does not apply to life insurance or personal accident insurance because human life is considered priceless. You can have as much life insurance policies as you want, and they can all pay out in full because the value of a human life cannot be exactly measured in money.

CONTRIBUTION

What is Contribution?

Contribution is a rule used when multiple insurance policies cover the same risk. If a loss occurs, each insurance company pays a part of the claim. This ensures that no single insurer has to pay the entire claim, and the payment is divided fairly.

Example:

Imagine a person named A has insured his motorcycle for ₹1,00,000 (100,000 rupees) with three different insurance companies:

• Company X insured for ₹50,000
• Company Y insured for ₹40,000
• Company Z insured for ₹15,000

One day, A’s motorcycle is completely destroyed by fire. The total value of the loss is ₹1,05,000.

Here is how each company will share the cost:

• Company X will pay: (₹50,000 / ₹1,05,000) * ₹1,00,000 = ₹47,619.047
• Company Y will pay: (₹40,000 / ₹1,05,000) * ₹1,00,000 = ₹38,095.238
• Company Z will pay: (₹15,000 / ₹1,05,000) * ₹1,00,000 = ₹14,285.714

Adding these amounts:

• ₹47,619.047 + ₹38,095.238 + ₹14,285.714 = ₹99,999.999 (which is approximately ₹1,00,000)

So, the total amount paid by all companies together is ₹1,00,000.

The Insured Can Claim From One or All Insurers

A (the insured person) can choose to claim the whole amount from just one insurance company (let’s say Company X), which would then pay the full ₹1,00,000. After paying, Company X can ask the other companies (Y and Z) to pay their share:

• Y should pay X ₹38,095.238
• Z should pay X ₹14,285.714

Conditions for Contribution

1. Double Insurance: There must be more than one insurance policy covering the same thing and the same risk. For example, multiple policies covering the same motorcycle for fire damage.
2. No Over-Insurance or Partial Loss: The total amount insured by all policies together should equal the value of the insured item. If the item is completely destroyed, the insurers will contribute up to the total value insured by their policies. If the loss is partial or there is over-insurance, contribution might not apply.
3. Full Recovery by the insured: The insured person should be able to recover the entire loss amount from one or more insurers. Each insurer will pay according to the amount they insured.

Subrogation

Subrogation is when one person or party (like an insurance company) steps into the place of another person (like the insured) to claim their rights, remedies, or securities.

The Principle of Indemnity

• Indemnity means compensation for a loss or damage.
• The insured person can only get back the actual amount they lost. They cannot profit from their loss.
• If the loss happens without anyone’s fault, the insured can claim the loss from the insurance company.

When Someone Else is Responsible

• If the loss is caused by someone else’s fault or wrongdoing, the insured can claim the loss from both the insurance company and the person at fault.
• However, the insured cannot keep money from both and profit. They have to choose one.

The Role of the Insurance Company

• If the insured decides to get money from the insurance company, subrogation comes into play.
• The insurance company then steps into the insured person’s shoes.
• The insurance company can then go after the person who caused the damage to get the money back.

Full Indemnity and Excess Recovery

• Full indemnity means the insured has received full compensation for their loss from the insurance company.
• If the compensation from the insurance company is less than the actual loss, the insured can still claim the remaining amount from the person at fault.
• If the insured ends up with more money than the loss after the insurance company recovers its money, the extra money goes to the insured.

Assistance and Rights

• The insured should help the insurance company to claim from the person at fault.
• The cost of this action is covered by the insurance company.
• The insurance company only gets the rights that the insured person had. This means the insurance company can only recover what the insured person could have recovered.

Summary

In summary, subrogation allows the insurance company to take over the rights of the insured person to recover losses from the person who caused the damage. The insured person cannot make a profit from their loss and should assist the insurance company in getting back the money, but the costs for this will be covered by the insurance company. Any extra money recovered after full indemnity goes to the insured person.

Reinsurance

1. What is Reinsurance?
   • Reinsurance is when an insurance company takes on a big risk by giving out insurance policies. Sometimes, the risk is too big for one company to handle alone. In such cases, the insurance company may make a deal with another insurance company to share part of the risk. This deal is called reinsurance.
2. How Does Reinsurance Work?
   • The original insurance company (let’s call it the “insurer”) keeps part of the risk and passes the rest of the risk to another insurance company (called the “reinsurer”). This way, if a claim is made, the reinsurer helps pay for it.
3. Impact on the Original Insurance Contract
   • Even though the insurer has made a deal with a reinsurer, this does not change the insurer’s responsibilities to the person who bought the insurance (the insured). The insurer must still fulfill all promises made in the original insurance contract.
4. What Happens If the Original Insurance Policy Ends?
   • If for any reason, the original insurance policy is canceled or ends, the reinsurance agreement also ends.
   • Additionally, if the original insurance contract is changed without asking the reinsurer, the reinsurer is no longer responsible for the risk.
   • This means the reinsurance agreement is only valid as long as the original insurance policy stays the same.

💡 In summary, reinsurance is a way for insurance companies to manage large risks by sharing them with other insurance companies. The original insurer remains responsible to the insured, and the reinsurance agreement depends on the original policy staying in place and unchanged.