Definition
Contribution Principle
The principle of contribution allows insurers to share a claim proportionately when the same risk is covered by more than one indemnity policy.
If a person holds two health or property policies covering the same loss, contribution prevents them from collecting the full amount from each and profiting. The insurers settle the claim between themselves in proportion to their respective sums insured.
In Indian health insurance, IRDAI rules let a policyholder with multiple indemnity policies choose which insurer to claim from first; if one policy is insufficient, the balance can be claimed from the other, with contribution applying to the shared portion. Like subrogation, contribution flows from the indemnity principle and does not apply to life cover.
Related terms
- SubrogationSubrogation is the insurer's right, after paying a claim, to step into the policyholder's shoes and recover the loss from the third party who caused it.
- Indemnity PrincipleThe principle of indemnity ensures an insured is restored to their pre-loss financial position but cannot profit from a claim, applying to general insurance.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.