Can travelers have too much insurance coverage?
We were recently asked this question by a consumer who suffered an injury while traveling, forcing him to cut short a trip to Europe. He had purchased two travel insurance policies, one six months before the trip and the other two weeks prior to departure. One of the insurance carriers reimbursed 55 percent of his out-of-pocket costs involved in changing his flight to return home early.
“Is it ethical to file with the other carrier to recover the remaining out-of-pocket travel costs?” he asked.
(Note: Although we normally identify our subjects by name, we decided to depart from that procedure for purposes of this story. You’ll see why in a minute.)
It’s not illegal or unethical to have multiple insurance policies for anything, known in the insurance industry as “double insurance.” And it’s not uncommon for policyholders to own more than one policy covering their lives, health, property or anything else of value. After all, different insurers offer different types of coverage and terms. Some may offer limited coverage or exclude costs such as meals or incidental expenses, while others cover them fully.
And it’s even legally acceptable to file claims on all the policies simultaneously when a covered event occurs, since all the insurers are liable for the coverage. It makes sense to do this when there’s a cap on reimbursed amounts (there usually is), coverage exclusions or deductibles that would cause a significant portion of an otherwise covered loss to not be reimbursed.
But what if the combined payouts are more than the total loss and expenses?
That’s “profiting” from insurance coverage — also known as “unjust enrichment.”
The purpose of any type of insurance coverage, including travel insurance, is to make the insured “whole” by providing reimbursement to cover the amount of a loss. Insurance companies are legally bound to share the total loss in proportion to the total premiums paid to all the carriers. So a policyholder who owns multiple travel insurance policies is limited to recovery of the total amount lost — but not a penny more.
Unjust enrichment is a form of insurance fraud, in which payment from an insurer is improperly sought. While double insurance does not in and of itself constitute insurance fraud, falsifying a loss and making false statements in connection with an insurance claim do, including failure to disclose ownership of other insurance policies with the same coverage. And insurance companies require policy applicants to list any other policies they own on their applications.
Depending on the underlying facts, an insurance fraud case may be either criminal or civil. Insurance companies collaborate with each other to determine if multiple policies are in effect during underwriting processes (reviewing insurance applications) as well as claims adjustment processes. And policies contain specific terms warning that they will not allow for unjust enrichment by paying more than the actual amount of a claim.
While we don’t make specific recommendations as to travel insurance policies or companies, we do think it’s advisable to have travel insurance coverage when planning international travel or complex trips, such as cruises. In addition to policies sold directly by insurance companies, many travel companies, premier credit cards and other organizations offer travel insurance coverage. We strongly urge purchasers of travel insurance to carefully read and familiarize themselves with policy terms before obtaining coverage or filing claims.
Our injured traveler subject might be able to recover the other 45 percent of his out-of-pocket travel costs for this trip from the other insurance company — but no more than that. We wish him the best in seeking full reimbursement for his actual loss.