What is subrogation in insurance, and how does it affect you?

Yahoo

23-07-2025

If you've read your insurance contract, you might have come across the term 'subrogation insurance.' Subrogation insurance is a process that enables insurers to recoup their financial losses after paying out a claim when the insured isn't at fault.
Insurance companies normally handle subrogation in the background, and policyholders are usually left out of the process. However, it can still be helpful to understand what subrogation is in insurance and how it works.
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What is subrogation in insurance?
Subrogation is an insurance company's legal right to sue a third party responsible for a covered loss once the insurer has settled the claim with the policyholder. It allows the company to recover the money it paid out from the individual who was responsible.
Examples of subrogation
To better understand insurance subrogation, it can be helpful to look at examples. Here are a few scenarios where an insurance company might file a subrogation claim against an at-fault party's insurer.
Example 1: Another driver totals your car
You're hit by another driver in a car accident, and your car is a total loss. Your car insurance company pays you a settlement of $10,000, which is what your car was worth after the crash. Because the other driver was fully responsible, your insurance company decides to file a subrogation claim against the at-fault driver's insurance company to recoup the $10,000 it paid you.
Learn more: 6 steps to find cheap car insurance
Example 2: A vehicle damages your home
A delivery truck is coming up your driveway on a snowy day and slides on a patch of ice. The truck hits the front of your house and causes $30,000 worth of damage. Your home insurance company covers the $30,000 to repair your house, then attempts to get their money back from the delivery driver's insurance company through subrogation.
Learn more: How to shop for homeowners insurance in 5 steps
Example 3: A neighbor's dog bites you
You encounter your neighbor's dog when you're out for a walk, and it bites you. You go to the emergency room and need several stitches. The final bill for your visit is $4,000. Your health insurance coverage takes care of the medical bills, but it decides to file a subrogation claim against your neighbor's insurance company to recover the $4,000 it paid you.
Learn more: How does pet insurance work? A complete guide.
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How does subrogation work?
If your insurance company decides to subrogate a claim, there's not much you need to do. Typically, the insurance company will handle the entire subrogation process from start to finish, including all communication with the at-fault party's insurance company.
When pursuing a claim, your insurance company must include the cost of your deductible (if you paid one) in the total amount it asks for. This doesn't always mean you'll get your deductible back, since it depends on what your insurer gets from the responsible party. But in many cases, you might recoup some or all of the deductible you paid.
Learn more: What you need to know about car insurance deductibles
Even though the subrogation claims process is mostly passive for the insured, your insurer still has to notify you, and you have to cooperate with their efforts. If a subrogation claim is successful, your insurance company will be reimbursed for the money it paid for your claim.
How does subrogation affect insurance premiums?
When insurance companies are constantly paying out expensive claims for policyholders, it can negatively impact their profitability and eventually lead to rate increases for customers. However, subrogation can prevent this from happening.
Through subrogation, insurance companies are able to get back some or all of the money paid out in claims, which helps them remain financially stable. Because the insurance company isn't losing as much money, rates are typically kept lower than they would be otherwise.
Learn more: What is a car insurance premium, and how is it calculated?
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Pros and cons of subrogation
Subrogation in insurance has pros and cons for the insurance company and the insured party. Here's what to know about the benefits and limitations of subrogation in insurance:
Pros
Enables the insurance company to recoup its financial losses after paying out a claim
Subrogations can potentially help insurance companies keep rates low
In some cases, policyholders are able to recover the deductible paid out
Can sometimes expedite the insured's claim payout
Cons
Complex subrogation claims can sometimes take a long time to settle
There's no guarantee that the insurer will be able to get their money back
Can lead to litigation if the at-fault party's insurance company doesn't cooperate
If the insured and the responsible party know each other, subrogation could cause tension
What is a waiver of subrogation?
Some insurance policies include a waiver of subrogation. As the term suggests, a waiver of subrogation prevents an insurance company from seeking compensation from an at-fault party's insurance carrier after reimbursing a customer for a covered loss.
For an insurer, agreeing to waive its right to subrogate exposes the company to additional risk. Once your insurer pays out a claim, it can't seek reimbursement from the responsible person's insurance company. Because of that, insurance policies that include a waiver of subrogation often have higher rates.
Here are a few examples of where subrogation is typically waived to reduce the risk to third parties:
Construction contracts
Tenant/landlord contracts
Vendor contracts
Insurance subrogation FAQs
What happens if I ignore a subrogation claim?
Ignoring a subrogation claim can have consequences. If you don't respond, you could face fines and potential legal action. It could also delay your claim settlement.
What happens if the fault is shared between two parties?
Subrogation claims with shared responsibility can be complicated. It could prevent the insurance company from recovering all the money it paid out for the claim. The situation will mostly depend on the comparative negligence laws in the state where the loss occurred.
How long does insurance subrogation take?
Insurance subrogation can take anywhere from a few weeks to a few months — or even longer. Simple cases are usually resolved quickly, whereas complex claims can take much longer. The length of time also depends on the willingness of both insurance companies to cooperate and settle the claim.
Tim Manni edited this article.