Explained the meaning of subrogation in insurance with an example

Accidents are common in the bustling cities of India. Each year, a lot of people face accidents that result in vehicle damage, disability, and sometimes even the loss of life. However, there are times when accidents are not your fault, but you still cannot sue the other party. Here’s when subrogation in insurance will benefit you: In simple terms, insurance subrogation will assist you in recovering the claim amount when a third party refuses to accept responsibility for the mishap. Read on to find out more about the meaning and workings of subrogation insurance. 

What is the meaning of subrogation in insurance?

Subrogation can be defined as the process in which the insured’s name is replaced with the insurers. Under this, the policyholders transfer ownership and claim money from the at-fault party if they are found guilty of the occurrence. The workings of subrogation are based on the indemnity clause, which means a contract between the insured and the insurance company outlines the parties' claim processes and financial obligations in case your car is damaged or stolen. 

How does subrogation in insurance work?

Under the process of subrogation, three parties are involved: the insurance company, the insured, and the third party who is liable for the loss and damage. The initial process began when the insured claimed for the damages that had happened due to a third party. Once the claim settlement with the insured has been completed, the insurance company may begin the process of recovering the claim amount from a third party. However, before that, the insurer may ask for your legal permission to sue the negligent party. It should be noted that a few insurance companies add deductible amounts during the subrogation process. As a result, the policyholder is liable to claim damage along with deductible amounts whenever the third party pays for the cost of the damage. 

Above all, you can keep track of the policy documents and legal hearings to compensate the claim amount against the damages from the third party. Let’s understand the workings of subrogation in insurance with the story of Mahesh.

While he was travelling to work, his car got damaged when a careless driver struck it. The person who hit his car did not accept his fault and denied paying any compensation amount. Mahesh claimed his car insurance policy because he couldn’t bear the expense of damage from his own pocket. Here’s when the subrogation process began, where you shift the legal rights to the insurance company to recover compensation for the damages from the third party. 

Principles of the process of subrogation in insurance

The subrogation process works on various terms and conditions that are listed below. 

• As mentioned in the policy document, the complete subrogation process should be confidential between the insured and the insurance company. 
• Without the consent of the insured, the insurance company cannot initiate the process of subrogation. 
• The insurer cannot subrogate until he/she has received the full compensation amount. However, there are few insurance companies that began the subrogation process even if the compensation amount hasn’t been negotiated. 
• The insurance company is liable to sue the guilty third party for the damages. 

What Is Waiver of Subrogation in Insurance?

While reading the policy document, you may have come across the term “waiver of subrogation,” which means reviving the rights of subrogation. In order to keep peace between the parties, insurance companies typically waive their right to recover damages from third parties because the insured waived their right to recovery. The person who is liable for the loss would expect you to waive off the subrogation rights for your own peace of mind. This will eliminate the possibility of a dispute between you and the guilty party. 

What You Should Know About Subrogation in Insurance? 

As a policyholder, you should be aware of this important provision when purchasing or renewing motor insurance policies to prevent any disagreements with the third party. Listed below are the things that you should know about subrogation in insurance. 

• The insurer can get the subrogation right only when the claim amount has been settled with the insured. 
• Subrogation can be laid off by the policyholder, which may result in the payment of an additional fee which may be different for the insurers. 
• Always understand the subrogation clause at the time of the purchase of the policy for a clear understanding. 

Conclusion 

Subrogation, in simple terms, is the submission of authority to the insurance company. Whenever a third party is guilty in an accidental situation, an insurer intervenes to recover the compensation amount. As a policyholder, you have the complete right to waive off the subrogation and know about all the activities happening between the third party and the insurance company during the process of subrogation.

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