Question

What is the name of the insurance principle that refers to an insurer giving up its right to recover money or damages paid out to the insured from another party?

Option 1: Subrogation
Option 2: Indemnification
Option 3: Insurable interest
Option 4: Underwriting

Answer 1

Subrogation is the insurance principle where the insurer can recover the costs paid to the insured from the party responsible for the loss, discouraging moral hazard.

Step-by-step explanation:

The insurance principle that refers to an insurer giving up its right to recover money or damages paid out to the insured from another party is known as subrogation. Subrogation allows the insurance company to take on the legal rights of the insured after compensation has been paid, in order to recover the costs from the party responsible for the loss. This method is an essential part of the insurance system, functioning as a means to maintain financial balance and prevent the occurrence of a moral hazard, where insured individuals may take greater risks knowing they are protected.