Subrogation in Insurance
Have you ever gotten into a situation when you just know the accident wasn’t your fault, but you couldn’t really do anything, even though it was the opposite party’s fault? This is exactly where you could benefit from something we call Subrogation in Insurance. Sounds eerie? Read on, we’ll simplify it for you 😊
What is the meaning of 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.
How Subrogation in Insurance 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.
Let’s get real with an example
Things are always easier understood when we can connect it to a story, or an example. So here it goes. One fine day, your car happens to hurt after a reckless driver bumps into your car. Now, the back of your car is damaged, and this guy doesn’t even seem to accept his fault. You have no time to fight this out or argue further, so you move on with your damaged car and instead get your comprehensive car insurance to pay for the damages (minus the deductibles, of course!).
Now, this is exactly where this fancy term, “Subrogation” could help you out. Your insurance company here will hold the third-party responsible for the damage and reimburse both the amount of money you spent from your pocket, plus the amount of money your insurance company paid for due to the damages and losses caused.
What are the rights of an insurer when it comes to Subrogation in Insurance?
It’s important to be aware of one's rights. In this case, let’s understand the rights of your insurer in the case of Subrogation:
- 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.
Key Things to Remember about Subrogation in Insurance
- The Insurer gets the right to sue the third party after paying off the amount claimed by the insured
- The Insurer can access the right of subrogation only after the amount of claim is paid to the insured
- In case of waiver of subrogation, your insurer could charge a fee
- Subrogation clause is there in all insurance policies
- There is transparency between the insurer and the insured
- Insurers with effective subrogation acts may offer lower premiums to their policyholders
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
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
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!
What is the purpose of Subrogation in Insurance?
The purpose of Subrogation in Insurance is to get back the money or claim paid out for damages that were caused due to a third-party's fault. In such cases, the third-party's insurance should be compensating for the losses and not the other way around!
Do I have to be involved in the subrogation process?
No, after you’ve filed for subrogation with your insurer, you can leave the rest to your insurer 😊
Is Subrogation only applicable in car insurance?
No, the subrogation clause is applicable for all kinds of insurance such a home insurance, bike insurance, bicycle insurance, etc.