Explain it like I'm five
We're making insurance so simple, now even 5-year-olds can understand it.
There are three brothers in a family. The eldest brother has promised to take care of his two younger siblings. One day, the youngest brother breaks a toy that belongs to the middle brother. The middle brother starts crying, so the eldest brother gets him a new toy. But to be fair to everyone, he ensures that the youngest brother pays for it from his own pocket money.
What just happened was ‘subrogation’.
Accidents happen. It’s one of the many basic truths of life. But not all accidents are of your own doing, sometimes they can occur due to someone else’s mistake. But then, why do you have to suffer the damage for no fault of yours?
The good news is, for situations like these – you have subrogation!
What is subrogation?
Forget how complicated the word sounds. Let’s put it as simply as possible.
Subrogation is when your insurance company seeks compensation from the person or entity legally responsible for the accident, after they have paid money on the behalf of the insured.
Still sounds difficult? An example should clear it up!
Suppose you get in an accident on the road with a motorcycle – because the motorcycle was driving on the wrong side of the road in a one-way. The accident is, technically, the motorcyclist’s fault.
So, the insurance company pays for the damages that occurred to your vehicle. Then, the insurance company can contact the motorcyclist (or their insurance company) to incur those costs. Because after all, it’s their fault, so they should pay!
Subrogation could include money paid out for property damage, deductible amounts, diminished value, pain and suffering, etc.
How does subrogation work?
Basically, the insurance company puts themselves in your shoes – to sue the entity responsible for the damages on your behalf.
Let’s say your car is involved in a collision due to negligent driving on somebody else’s part, and your insurance company settles your claim. Your insurance company may then ask you to sign a subrogation release, that assigns your right to sue the other person, to the insurance company.
Subrogation usually occurs after your initial claim has been settled. Some insurers will include the deductible costs in the subrogation, and so you’ll get the deductible back once the other driver has paid the compensation to the insurance company.
Most insurance companies will make the process crystal-clear by giving you documentation that records the exact amount the insurance company paid for your claim, and the amount that they can get through subrogation.
What is waiver of subrogation?
In some cases, a contractual obligation will need you to waive your right to subrogation. This means that your insurance company cannot pursue compensation from another person. For instance, take the earlier example of the car accident where you were not at fault. In this case, if both you and the other party have waived subrogation, your insurance company will pay for your damage. But it won’t be able to seek the damages from the responsible party, i.e. the other driver who is at fault.
If you are ever asked to waive your subrogation rights, remember to keep these things in mind:
· Your insurance policy may not let you waive subrogation. Make sure you read your policy documents properly to know if this is the case.
· There are certain cases when you should waive subrogation only as much as the limit on your insurance policy. Because once you do, you will be surrendering your right to claim damages from the other person. Suppose your policy limit is Rs.1000. In such a case, waive off the subrogation only if the damage is less than or equal to Rs.1000. Otherwise, if the damage is of an amount more than Rs.1000, neither your policy will cover it, nor will you be able to ask the responsible person for compensation.
In any case, it’s always a good idea to check with a legal consultant before getting a waiver of your subrogation rights.
How do you manage a subrogation claim?
Most subrogation claims happen without you having to do a single thing, as insurance companies of both parties battle it out with each other! So, the best thing to do is be patient, and you might even get back your deductible.
In case a subrogation claim is made against you, it’s best to cooperate with the insurer. And if you are the one subrogating someone else, make sure you’re in close contact with the insurance company so that your issue is not neglected.
Remember that if you need any help, you can always get an attorney who can ensure you get your rightful compensation. Of course, the main thing is – subrogation means your insurance company will handle it.
So if you’re in a situation that requires subrogation, you don’t have to sweat it!