The principle of subrogation in insurance plays a crucial role in protecting the financial interests of both the insurance company and the policyholder. Insurance claims can be a complicated process, and subrogation clauses often get overlooked or misunderstood. In this article, we will guide you through the principle of subrogation in insurance and how it works in the context of insurance.
Subrogation meaning
Subrogation is a concept that applies to insurance policies. It is the legal principle that allows the insurance company to recover the amount paid as compensation from the person responsible for the insured loss. This means that if you make a claim on your car insurance, and a third party is liable for your injury or illness, the insurer can recover the amount paid from the third-party's insurance company or directly from the responsible party. This principle ensures that the insured does not receive an undeserved advantage from insurance claims.
What is the principle of subrogation in insurance?
The principle of subrogation in insurance enables the insurer to take over the policyholder's legal right to recover damages. In other words, the insurance company has the right to pursue any third-party liable for the damages that it has paid out to the policyholder.
The principle of subrogation in insurance is used by underwriters to limit their financial risk when paying out claims. It allows the insurer to recover the amount paid out to the policyholder by claiming from the responsible third party.
Types of subrogation in car insurance
There are three types of subrogation in car insurance: contractual, legal, and equitable.
Contractual subrogation:
This type of subrogation arises when the insured party contracts with the insurer to receive the benefits of subrogation. Car insurance policies typically include this clause when the insured party is responsible for causing damage to a third party's vehicle.
Legal subrogation:
Legal subrogation arises by operation of law. In the context of car insurance, if an insured party gets injured in an accident caused by a third party, then the insurer can exercise legal subrogation to recover compensation from the third party's insurance company.
Equitable subrogation:
Equitable subrogation allows the insurer to recover the paid amount from a third party without a contractual agreement or operation of law. This type of subrogation arises when the insurer pays for damages or injuries that another party should have covered.
How does subrogation work in insurance?
The principle of subrogation applies when the insurer pays out a claim to the policyholder for any expenses against damages incurred because of third party. The insurer may then proceed to seek reimbursement for those costs from any third party that may be responsible for the policyholder's health condition.
For instance, if your vehicle incurs damages because of a third party’s fault, the insurer can recover the amount paid out in claims from the third party's insurance. This prevents the insurer from bearing the entire financial burden of expenses that arose due to someone else’s fault.
Why is the principle of subrogation important in insurance?
The principle of subrogation in health insurance is important for both the insurance company and the policyholder. It secures the insurer against excessive financial liability if an accident or injury occurs, as it can recover the costs from the responsible party. Policyholders receive quality services at lower premiums as insurers can cover the risk through subrogation.
Subrogation also benefits insurance companies as it ensures that they can recover the cost of claims that they have paid out. This, in turn, helps to keep insurance premiums competitive.
The principle of subrogation in insurance is a powerful tool that serves to protect both the insurer and policyholder. It is important for policyholders to acknowledge and understand the principle of subrogation and stay informed throughout the claims process to protect their financial interests.
