What is the primary purpose of an "other insurance" clause in insurance policies?

The primary purpose of an "other insurance" clause in insurance policies is to prevent overinsurance. This clause is designed to coordinate coverage when a policyholder has multiple insurance policies that could respond to the same loss. By establishing rules on how claims will be paid when more than one policy applies, this clause ensures that insurance payouts do not exceed the total loss incurred.

When multiple policies cover a single risk, there is a concern that the insured could potentially receive more than the actual loss due to overlapping coverage. To mitigate this risk, the "other insurance" clause specifies how the insurance companies coordinate payment. For instance, it may dictate that each insurer pays a proportionate share of the loss based on the limits of their respective policies. This helps to ensure that the insured receives compensation that aligns with the actual damage or loss, without benefitting from excessive or duplicative coverage.

Understanding this function is crucial for insurance adjusters as it influences how claims are handled and ensures fair practice in the insurance industry.