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