Big snag to multiple policies

You may think you’re doing a smart thing by having numerous funeral policies, in the hopes of leaving your family with a large sum of money to use for a funeral or any other purpose when you die. But this is a dangerous assumption to make and claims against multiple policies may be rejected due to your being “over-insured”.

Funeral policies can be governed by the Long-Term Insurance Act or the Short-Term Insurance Act, depending on the entity selling the product.

While there is no limit to the number of funeral policies you can have, and nothing in the Long-Term Insurance Act that deals with “over-insurance”, there are insurers who won’t insure any one person for more than a set amount and there are those that will pay only a certain number of polices on a particular person’s life. This is according to Jennifer Preiss, the deputy ombudsman in the office of the Ombudsman for Long-term Insurance.

So, if you and three of your siblings take funeral insurance from Insurer X for your mother, when your mother dies the insurer may pay out on only two policies, or may pay out up to a certain amount.

The Ombudsman for Short-term Insurance (OSTI), Deanne Wood, says that while there is nothing stopping you from having as many funeral policies as you want covering the same interest (that is, the same life or lives), “over-insurance” may be prohibited in terms of your policy. You need to check the wording of your funeral policy.

The OSTI has recently dealt with two cases where the insurer rejected the claim on the basis of over-insurance. Wood says that in such cases the legal principle is as follows: if the amount secured by the various policies exceeds a full indemnity, the insured must make his choice. He may recover in full from any one of the insurers, but once the insurer has indemnified him, he can recover nothing from the others.