Principle of Contribution in Insurance
Two policies on the same loss do not pay twice. The insurers share it.
A trader in Surat insures his warehouse stock with one insurer for ₹30 lakh. His bank, which has financed the stock, arranges a second policy for ₹20 lakh with another insurer. A fire causes a ₹10 lakh loss. Can he claim ₹10 lakh from each? No. Contribution is the principle that makes the two insurers share the ₹10 lakh, so he recovers his loss once.
Contribution is a corollary of indemnity. Where the insured holds more than one policy on the same risk, each insurer pays only its rateable share, and an insurer that has paid more than its share can recover the excess from the others.
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When Contribution Applies
The standard conditions. If any one is missing, there is no contribution.
- 1
Two or more policies of indemnity
Life and personal accident policies never contribute.
- 2
Covering the same subject matter
The same stock, the same building, the same car.
- 3
Against the same peril
Both policies must cover the cause of this loss, say fire.
- 4
Taken by or for the same insured
The same insurable interest. An owner's policy and a bailee's policy on the same goods protect different interests.
- 5
All in force at the time of loss
A lapsed or expired policy does not contribute.
Independent Liability Basis
Where policies are not concurrent (different extents of cover, or one subject to average and the other not), the loss is shared on the independent liability basis. Work out what each insurer would pay if it were the only policy, then share the loss in proportion to those amounts. If A alone would pay ₹8 lakh and B alone ₹4 lakh on a ₹9 lakh loss, A pays 8/12 of ₹9 lakh (₹6 lakh) and B pays 4/12 (₹3 lakh).
Property policies carry a contribution condition (often called the rateable proportion clause) limiting each insurer to its share, so in practice the insured claims from each insurer for its share rather than from one in full.
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Health Insurance Works Differently Now
IRDAI's 2024 master circular on policyholders' interests lets a policyholder with more than one indemnity health policy claim under the policy of their choice. That insurer becomes the primary insurer and, if its cover is less than the admissible claim, coordinates with the other insurers to settle the balance. Under benefit-based policies the policyholder can claim from all insurers. Some older material still describes rateable sharing for health claims.
Policies Arranged Through a Lender
IRDAI's 2024 master circulars also say that, for retail general insurance (policies for individuals, households and micro or small businesses), where a customer holds more than one policy covering the same risk and a bank or other lender is involved, the insurer will not apply the contribution clause; under-insurance is applied on an overall basis, comparing the total sum insured under all policies with the value at risk. If the Surat trader's policies are retail policies, they would be settled this way today.
How IC-01 Tests This
Expect the conditions list (spot the missing one), a sum-insured-basis calculation, and "contribution does not apply to" questions. The trap is choosing contribution where the policies protect different interests, such as an owner's and a carrier's policy on the same goods.
FAQs
What is the principle of contribution in insurance with example?expand_more
When two policies cover the same loss, the insurers share it. With ₹30 lakh and ₹20 lakh fire policies on the same stock, a ₹10 lakh loss is paid ₹6 lakh and ₹4 lakh.
Does contribution apply to life insurance?expand_more
No. Life policies pay fixed sums, so a nominee can claim the full sum assured under every life policy on the same life.
Can I claim from two health insurance policies?expand_more
Under IRDAI's 2024 rules, for indemnity health policies you choose which policy to claim under first, and that insurer coordinates any balance with the others. Under benefit-based policies you can claim from all insurers.
What is the rateable proportion clause?expand_more
A policy condition limiting the insurer to its rateable share of a loss when other insurance covers the same property, so the insured must claim the rest from the other insurers.
Next steps
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