To avoid the problem of over-insurance, insurers include which provisions in their policies?

Insurers aim to prevent the issue of over-insurance, which can lead to moral hazard where the insured may take undue risks since they are fully compensated for any loss. To manage this, they incorporate provisions to coordinate benefits among different policies held by the same individual or entity. Coordination of benefits ensures that an individual does not receive more in total benefits than what is actually lost or covered by their insurance. This provision allows for multiple insurance policies to work together effectively, ensuring that the insured is compensated appropriately without exceeding the actual out-of-pocket expense incurred.

Maximum limits, while they are important in various insurances, serve a different purpose. They set caps on the amount an insurer will pay for a covered loss. This is designed to protect the insurer from excessive claims rather than to address over-insurance scenarios specifically.

Thus, by implementing coordination of benefits, insurers are strategically addressing over-insurance directly by aligning the payouts across different policies, ensuring that individuals receive fair compensation without exceeding their actual losses.