SUBROGATION AND PREMIUM

Principle of subrogation Subrogation is the substitution of one person in place of another, whether as a creditor or as a possessor of any other rightful claim so that he who is substituted succeeds to the right of that other in relation to the claim, its rights, remedies or securities. Where the loss arisen out of tort or mischief by some third party the insured becomes entitled to proceed against the insurer as well as the wrong-doer. He can make a claim against either the insurer or the wrong-doer. If the insurer elects to be indemnified by the insurer, the doctrine of subrogation comes into play and as a result the insurer steps into the shoes of the insured and is subrogated to all the alternative rights and remedies of the insured against third parties in respect of the property destroyed or damaged.

When insurers right of subrogation arises When he has paid for the loss for which he is liable under the policy and this right extends only to the rights and remedies available to the insured in respect of the thing to which the contract of insurance relates.

Right of Subrogation Not merely on cash payments but to the value of all the benefits received by the assured, otherwise than in cash.

Consequences of SUBROGATION The insurers are entitled to all the rights and remedies of insured. The insurers are entitled to deduct from the amount payable under the policy, any sums received by the insured before the payment of the insurance money.

Case study A vessel owned by S.S. Navigation Co. collided with a vessel owned by the Shalimar Paints Co. causing it to sink. The insurer indemnified the Shalimar Paints Co., took a Deed of Subrogation and sued S.S. Navigation Co. for recovery of damages more than three years after the collision.

Case study Mr. John insures his house for 1 million. The house is totally destroyed by the negligence of his neighbor Mr. Tom. The insurance company shall settle the claim of Mr. John for 1 million. At the same time it can file a law suit against Mr. Tom for 1.2 million, the market value of the house. If Insurance Company wins the case and collects 1.2 million from Mr. Tom.

Case study The trustee conducts business on behalf of the trust and fails to pay creditors, then the creditors are entitled to be subrogated to the personal and proprietary remedies of the trustee against the beneficiaries and the trust fund.

PREMIUM The consideration paid by the insured to the insurer for undertaking the risk is called premium. The amount of premium is purely a matter of contract, depending of the insurers estimate of risk. Most insurers issue tables of premium showing the rate charged by them for each class of risk undertaken.

Types of premium Net premium Gross premium Single premium Level premium Pro-rata premium Based on the length of time

Types Net premium: based on mortality and interest rate Gross premium: based on mortality rate,assumed interest rate, the expenses and bonus Single premium: lump sum in one single payment. Level premium: periodically in installment

Net single premium Premium which is received by the insurer in a lump sum and exactly adequate, along with the return thereon, to pay the amount of claim wherever it arises whether at death or at maturity or even at surrender. It does not provide for expenses of management and for contingencies.