How is a claim settled when a policyholder has two insurance policies covering the same home?

When a policyholder has two insurance policies covering the same home, the typical approach to settling a claim involves sharing the payment between both insurers. This is based on the principle of indemnity, which states that no one should profit from an insurance claim. Instead of one insurer paying the full claim or one being selected to pay first, the insurers will coordinate to determine their share of the payout.

This collaboration ensures that the policyholder is compensated appropriately without exceeding the total loss amount, thereby adhering to the terms of both policies. By dividing the payment, the insurers also mitigate the risk of over-insurance, ensuring fairness in how claims are handled when multiple insurance policies are in play.

The other choices do not reflect standard practice in insurance settlements. Choosing which insurer pays first is not typically how claims are managed, as both insurers have a liability in proportion to their respective coverage amounts. Paying the full value of the claim from each insurer could lead to the policyholder receiving more than the actual loss, which violates the principle of indemnity. Lastly, while arbitration can occur in disputes about coverage or liability, it is not a common method for settling claims that are straightforward in their sharing under existing polices.