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.
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:
A. Rs 5 Lakh
B. 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.