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Principle of Contribution

The principle of Contribution is one of the 7 primary principles of insurance. This article will aim to provide clarity on this concept and enlighten the reader on the benefits, features, and use cases of the principle of contribution in insurance.

We will also aim to solidify the concept of contribution with a couple of easy-to-understand examples. Let us begin.

What is the Principle of Contribution?

The principle of contribution comes into effect when a person insurers the same object with two or more insurance companies.

The principle states that even though the insured files a claim with one insurance company and gets his claim amount, that company has the right to get reimbursed by the second insurance company. This is the principle of contribution in action.

Let us get further clarity on this principle with 2 simple to understand examples.

Examples of Principle of Contribution

Example 1

Let us say that Mrs. Joshi had 2 health insurance policies with different companies having coverage of Rs. 2 lacs each. Let us further assume that Mrs. Joshi was admitted to the hospital for a minor condition and the cost of hospitalization was Rs. 2 lacs. Upon discharge, Mrs. Joshi decided to claim the entire Rs. 2 lacs from insurance company 1.  The Insurance Company 1 paid her the entire claim amount and Mrs. Josh was happy.

Now, The principle of contribution states that insurance company 1 can legally claim 1 lac from Insurance Company 2, as company 2 also provided insurance to Mrs. Joshi

Example 2

Let us assume that Mr. Mohan had 3 fire insurance policies with 3 different insurance companies, amounting to Rs. 5 lakhs each. Now, Mr. Mohan’s wear house catches fire and causes damages of Rs. 10 lakhs. Mr. Mohan files a claim with 2 insurance companies and both of them pay him Rs. 10 lakhs cumulatively.

Now, both Company 1 & 2 will raise a claim with company 3 for Rs. 166667/- each as Company 3 also agreed to bear the risk equally

Features of Principle of Contribution

  • The principle of contribution will only come into effect if the insured has 2 or more policies.
  • The insured should insure the same object with 2 or more insurance companies.
  • The insurance companies should cover the same risks.
  • It is enforceable by law.

Author Bio

This article is written by Team InsuranceLiya.com, an independent website that writes about insurance, finance, health, and more. Our writers have a wealth of knowledge, experience, and degrees in the fields of insurance, finance, economics, and beyond.

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