Question

The Subrogation clause found in many policies:

a. Provides a means for settling disputes between the company and the policyholder.
b. Specifies exactly how much coverage is provided by the policy.
c. Spells out the conditions which must be complied with before a loss may be settled.
d. Helps to prevent the insured from collecting twice for the same loss.

Answer 1

The Subrogation clause d) Helps to prevent the insured from collecting twice for the same loss by allowing the insurance company to pursue reimbursement from the responsible party after paying a claim. It is distinct from coinsurance, which is a cost-sharing mechanism within an insurance policy.

Step-by-step explanation:

The Subrogation clause found in many insurance policies plays a critical role in the claims process. This clause allows the insurance company to step into the shoes of the insured after a loss has been paid, in order to seek reimbursement from the party responsible for the loss. The correct option with respect to the Subrogation clause is:

• d. Helps to prevent the insured from collecting twice for the same loss.

This is because subrogation prevents the policyholder from receiving an insurance payout and then also seeking compensation from the third party that caused the damage or loss, effectively avoiding double recovery. It's important to note that insurance policies also incorporate other cost-sharing mechanisms like coinsurance, where the policyholder and the insurance company share the cost of a loss at a predetermined percentage. This concept of coinsurance ensures that the policyholder also has a financial stake in the insured property, which helps in reducing moral hazard.