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Subrogation in Insurance

Ever got into a situation where you knew the accident happened because of the other driver’s fault but you couldn’t do anything? Relax, there is a solution to this problem and the solution is called Subrogation. We know the word sounds very difficult; we will make it simple for you.


What is Subrogation in Insurance?

Subrogation in insurance is a term used to describe a legal right the insurance company holds to legally pursue a third-party responsible for the damages caused to the insured. In simple language, when an insurance company pays you the amount you claimed in a situation where the third party was responsible for the damage in question, you subrogate your rights to the insurance company. This means you give the insurance company the legal right to sue the person who caused the accident to recover the money paid to you for the damages.

Understand it further with an example. - Your car bumped from behind by a careless driver, after hours of argument he still did not accept his fault and you had no option but to move on with the damaged back. Here you will get the money for the damage from your insurance company, but don’t you think there should be someone to teach a strong lesson to the one who was responsible for this damage? Your superhero here is your insurance company, the insurer after paying you the amount you have claimed, will catch the culprit and legally reimburse the amount from him. This is a win-win situation, both for you and your insurer.

Subrogation in no way affects the insured claim amount or procedure. It is popularly called in the insurance industry an act of ‘Stepping into the shoes of policyholder’. The insurance companies with effective subrogation acts will offer lower premiums to the policyholders and lower premiums will give financial relief.


How Subrogation works:

It is an act of pursuing the third party on behalf of the policyholder after paying the claim amount. The insured here gets his payment on time in case of a claim and the insurance company reimburses the same amount from the third party who may have caused the impairment. Policyholders, when acquainted with this term ‘Subrogation’, will instantly think that this is one term and is beneficial only for insurance companies, but it is surprisingly and indirectly beneficial to the insured. Some insurance companies add the deductible amount too in the case of a subrogation. So, in case of such a situation where the damage is done by the third party, you get your claim amount plus the deductible once the third party pays the compensation to the insurance company.

This is in no way a hidden process; your insurer will be transparent to you. You will be given the record of the amount it paid you for your claim and the amount they are reimbursed from the third party as a subrogation claim.


Insurer's Subrogation Rights

Let’s understand what are your insurer’s rights when we talk about Subrogation, the insurance companies can act in two ways:

  • After paying the amount of claim to insured, an insurer is entitled to stand in the shoes of the insured and can enforce the insured's rights against the third party and reimburse the amount.
  • Secondly, after the amount of claim is paid to the insured, the insurer is subrogated to the rights of the insured and may prosecute a suit against the wrongdoer for recovery of its expenditure.

What is Waiver of Subrogation?

A waiver of subrogation is when the insured surrendered the right of subrogation. Generally, the third party responsible partially or wholly for the damage in question would want you to waive off the right of subrogation for their peace of mind as they can be held liable by the insurer for the damages. It is done generally in cases where an insurance company waives its right to seek subrogation against the third party if the insured waived its right to recoup any losses against the other party.

This is a contractual provision whereby an insured waives the right of their insurance company to seek reimbursement for losses from a negligent third party.

Typically, insurers charge an additional fee for this special policy endorsement.


Important Points to Remember:

  • The Insurer gets the right to sue the third party after paying off the amount claimed by the insured
  • Insurer can access the right of subrogation only after the amount of claim is paid to the insured
  • In case of waiver of subrogation, insurer charges additions fee
  • Subrogation clause is there in all insurance policies
  • There is transparency between the insurer and the insured
  • The insurer’s with effective subrogation acts might offer lower premiums to the policy holders

Maximum policyholders are unaware of this very important clause while buying an insurance policy, this later results in conflicts. It is important to be acquainted with all the clauses/terms used in insurance before settling down for any one of them. You can always reach out to us for an expert opinion.

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’.

FAQs about Subrogation in Insurance