Benefit and Indemnity policies

One can take several life insurance policies and all of them pay in the event of death of the policyholder. Why is it that we cannot take multiple insurance policies for a car or a house by paying separate premiums and get compensation by all in the event of a claim?

There are basically two kinds of policies—benefit and indemnity policies. Benefit policies are for the benefit of the family or individual and are for cases where the value of loss cannot be determined. Life insurance policies and personal accident policies are examples of benefit policies, where a fixed compensation is paid, irrespective of the actual loss. Also, no one can determine the monetary value of the loss of one’s life to one’s family. For this reason, one can go for more than one insurance policy and get a claim in benefit policies.

Indemnity policies , on the other hand, are meant to compensate a person for the actual loss suffered by him. For example, in case of a car or a house, the value of the actual loss can be determined. Following the principle of indemnity, the insured shall be compensated only for the actual value of loss suffered by him. Under no circumstances is a person allowed to make profit from insurance. Consequently, in case an insured takes more than one policy, the loss will be shared by all the policies/insurers. Also, the insured cannot get more than the actual pecuniary loss he has incurred.

– FF28