It kind of makes sense.

An individual can have two or more life insurance policies on him or herself. If that person passes away with all policies in force, then all benefits are paid to survivors.

So, using two or more policies to insure an object such as vehicle or home would create additional benefits in the event of a claim, right?

No.

In fact, having two or more policies covering a home could lead to unnecessary confusion if there is a claim and more premium dollars being spent than needed.

The immediate question in that scenario is which policy was in force first? That policy takes the lead on a claim and is used for settlement. The second policy then provides excess coverage – coverage that can be paid out after the first policy’s benefits are exhausted.

Let’s take this scenario: Policy No. 1 insures a home for $100,000, while policy No. 2 insures it for $150,000. Let’s also assume the home’s replacement value is $150,000. Fire consumes the home and policy No. 1 pays out the entirety of the benefit minus any deductible. The same claim could be filed on the second policy to get the extra $50,000 in benefits, again minus deductible.

Makes sense, doesn’t it?

Because insurance works on the principle of indemnification – restoring an individual’s approximate financial position to a place it was before a loss – filing the same claim for the same loss on two policies is considered unjust enrichment. Should it happen, both insurance companies would negotiate which one carries the majority of the loss based on the terms of the most appropriate contract.

That negotiation can take quite a bit of time, and the results might not necessarily be in the insured person’s favor.

Double insuring a home sometimes occurs, especially when people are selling and buying the same home. A person’s financial interest in a home – its ownership -- transfers on the day of sale closing, even though the buyer may not actually take possession of it until several days later. But the seller may choose to keep insurance on the home until the buyer moves in “just in case” the deal falls through or the seller hasn’t fully moved out.

At the same time, the buyer has financial interest in the home and an insurance policy to cover it. So, if a tornado destroys the home before the buyer has moved in, who’s policy is on the hook?

In this case, it would be the buyer’s policy because he or she has newly established financial interest in the home – its ownership. If the seller still had furniture in the home, a claim could be filed on the seller’s policy for the lost personal property, but not for the building’s damages. However, most insurance policies provide coverage for property of others while ownership is transition, so the buyer’s policy can provide the extra coverage for the seller’s property.

There are times when have two insurance policies can be helpful. Families who have employer-provided health insurance on both parents can use one policy for initial coverage benefits, and then use the second if the benefits are exhausted. The challenge with this is in the coordination of claims.

Just as with most things in insurance, it is always best to share questions with an agent.

Alan T. Girton is a veteran agent with Indiana Farm Bureau Insurance. To learn more, visit https://www.infarmbureau.com/agents/Alan-Girton-Howard-Kokomo-IN