Hi.

So after realising I've been playing damage and horror wrong (I always dealt them face-down, but they should be played face-up and resolved), I decided to have a proper read through of the rules reference.

It turns out I was also playing wounded and insane wrong, as I was discarding all of the cards...

However, the rules state that w hen an investigator gets damage equal to or greater than their health, then all damage is applied, then a wounded condition is applied, and then only the face-down damage cards are discarded.

So if I'm reading this right... it is possible that you could apply the wounded condition, discard only face-down cards, and immediately die due to having more damage than health?

Similarly for horror, sanity, and the insane condition?

You are correct with your new way of applying of Damage and Horror.

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Immediate Elimination: Yes. You would have to suffer a substantial amount of the face-up Damage or Horror, and/or you would have to have a serious amount of face-up Damage or Horror already when you suffered enough to take you over your Health or Sanity a second time. Often times when you become Wounded or Insane you will have a face-up card or two stay with you. Although it's not happened at our table, we have wondered at those times of the potential of an outright immediate 'Wounded to Eliminated' or 'Insane to Eliminated.' It's possible, it hasn't happened, but it just could one day.

Am I also correct in thinking that all damage/horror is applied even over the health/sanity limit?

For example...

An investigator has 7 health and is currently on 6 damage. If an effect causes 2 damage, the sequence would be:

1. Draw 1st damage card face-up and resolve (total damage rises to 7).
2. Draw 2nd damage card face-up and resolve (total damage rises to 8).
3. Gain wounded condition (and resolve).
4. Discard all face-down damage (hopefully causing total damage to drop below 7).

This game is like (a simpler version of) LOTR LCG for me - it seems no matter how much I play I can always learn something new.

Yes indeed, you already understand it.

Take what is says for Wounded for example (bold added myself), same goes for Insane:

WOUNDED
If an investigator has suffered Damage—whether faceup or facedown— equal to or exceeding his health, that investigator becomes
Wounded.
^^When an investigator becomes Wounded, he gains a Wounded Condition and discards all of his facedown Damage.
• If an effect cause an investigator to suffer Damage in excess of his health , he suffers all Damage from that effect before becoming Wounded and discarding his facedown Damage .
^^When a Wounded investigator has suffered Damage equal to or exceeding his health, that investigator is eliminated.

Make sure you are also checking to see if the prompt for damage/sanity is telling you to do so face down, or just suffer. If it was all face down then you would be in luck, plus a vast majority of the damage/sanity cards tell you to resolve then flip.

Yeah, I think you'd have to be very unlucky to have all face-up damage/horror. But this game rarely gives you any breaks