Understanding Secondary Insurance: Coverage & Overlap

Secondary insurance, as the term implies, is insurance coverage that is available in addition to any primary policy that an insured may carry. It is often used to supplement existing policies or to cover any gaps in insurance coverage. It may also be present when two spouses have coverage through different employers. When coverage overlaps, there are methods available to determine how it will apply.

When Secondary Coverage Applies

Secondary insurance would be applicable in certain situations. For example, when a primary policy has a very high deductible amount such as a major medical policy, a second policy could be purchased to cover the deductible. Also, in a case where primary coverage may be denied or pays only a partial amount, a second policy may be able to provide additional coverage.

Which Coverage is Primary?

In a situation where two policies provide duplicate coverage, there is a method to determine how much, if any, each carrier bears responsibility for. An example is illustrated in the case of student insurance. Student health plans often contain a "reduction in benefits" clause, which will reduce the amount paid by a certain amount, such as 50 percent. If the student is also covered under his parents' policy, the claim would also be submitted to their carrier. The student plan would then pay any additional amount not covered by the parents' plan.

Spousal Situations

Another common occurrence is when an individual is covered under her own group health policy as well as her spouse's group plan. There are two common methods for determining which plan will provide coverage. In one scenario, the employer's plan for the spouse that is filing the claim would take precedence, while in the other, coverage would be provided by whichever plan the claimant has been a member of the longest.

Credit Card Insurance

Another situation where secondary insurance is used is when using a credit card to rent a car. Many credit card companies offer "automatic" coverage for using their card when renting a car. This is considered secondary coverage, and would only go into effect if there is no primary coverage, or if the limits of the primary coverage are exhausted.

Profiting

In addition to providing supplemental coverage, another function of secondary insurance is to prevent insureds from making a profit from insurance claims. For example, if an individual has health insurance coverage through his employer and also from an individual policy, in the event of a loss that would be covered under both policies, whichever policy that is deemed to be primary would pay the claim, rather than both policies.