What is the purpose of coordination of benefits in insurance policies?

The purpose of coordination of benefits is to manage how benefits are paid when an individual has multiple insurance policies in effect. This process helps to prevent overinsurance, which can occur when the total benefits from all policies exceed the actual incurred expenses. By coordinating benefits, insurance companies can determine which policy is primary and which is secondary, ensuring that claims are processed correctly and fairly without duplication of coverage.

In situations where a policyholder is covered by more than one policy, coordination of benefits ensures that the claims are handled in a way that reflects the benefits provided by each insurer. This is particularly important in health insurance, where policyholders may have coverage through an employer plan as well as a spouse's plan. The coordination of benefits rules establishes a clear framework for how payments are to be made, ensuring that the insured receives appropriate reimbursement without exceeding the actual costs incurred.

This process not only protects the interests of the insurance providers but also enhances the efficiency of claims processing and ensures that policyholders receive the intended benefits while preventing any potential abuse of the system.