What is the Principle of Contribution in Insurance?

2025-06-11

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The principle of contribution comes into action when you have taken more than one insurance policy to cover the same event.

The principle of contribution states that if the loss arises and you have taken more than one insurance policy, then the loss will be covered by the policies based on the proportion of the coverage the insurance policy provides.

If you have claimed from one company fully, you cannot approach other companies for the same. In such a case, since a single insurance company has paid the full claim, then it has the right to demand a proportionate claim from the other insurance companies.

This principle ensures that you do not get to claim an amount that is more than the loss by claiming from different insurance policies.

Key Takeaways

The Principle of Contribution applies when multiple insurance policies cover the same risk or subject matter.
It ensures that the insured does not receive more than the actual loss, avoiding unjust financial gain.
All insurers involved share the liability proportionally, based on their respective coverage amounts.
If one insurer settles the entire claim, they have the right to recover its due share from the other insurers.
This principle promotes fairness and equitable distribution of liability among insurance providers.

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Did You Know?

The Principle of Contribution, under the Insurance Act, 1938, ensures fair claim settlements when multiple policies cover the same risk.

Source: advisorsindia

Let’s understand with an example:

Kapil has taken health insurance from 2 health insurance providers, say A and B. Coverage amounts are as follows:

Rs 5 Lakh
Rs 5 Lakh

Now suppose he gets admitted and the total claim is Rs 2 lakhs. Kapil decides to use a policy from A insurance and got paid Rs 2 lakhs. Kapil now goes to B and demands his claim again. Now he is not eligible since he has already received the claim.

However, Company A has the right to claim Rs 1 lakh from Company B.

Glossary

Contribution: A principle where multiple insurers share the claim payout based on their respective coverage of the same risk.
Indemnity: A principle ensuring the insured is compensated for the actual loss, not more, preventing profit from claims.
Claim Settlement: The process by which an insurer evaluates and pays out a valid insurance claim.
Sum Insured: The maximum amount an insurer agrees to pay for a covered loss under a policy.
Policyholder: The individual or entity who owns the insurance policy and is entitled to its benefits.

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.

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