Related Definitions

Insurance Claims

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What is insurance claim?

An insurance claim is a request placed by an insurance policyholder for receiving compensation for covered losses or damages under the insurance policy. The insurance company then checks the request's legitimacy by assessing the mishap which had occurred and for which the insured had taken an insurance cover. After due examination, if found genuine and legally right, the claim is authorised and paid to the insured of the party, placing the request on behalf of the insured.


  • An insurance claim is a request placed by an insurance policyholder for receiving compensation for covered losses or damages under the insurance policy.
  • Insurance claim settlement depends on the principle of indemnity, principle of utmost good faith, principle of subrogation and proximate cause.

Types of Insurance

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Frequently Asked Questions (FAQs)

What is an insurance policy?

An insurance policy is a contract between two legal entities- the policyholder and the provider of the policy- an insurance company. As per the insurance policy, the policyholder is expected to pay at regular intervals payments, known as a premium, to the policy issuer. In return, the policy issuer, in the event mentioned in the policy cover, will pay the insured the sum assured. An insurance policy is a part of the financial planning of firms and individuals because it ensures financial security in the event of a crisis. Insurance policies are issued to provide coverage for life or in situations of accident, fire, flood, motor, marine, professional indemnity, landslides, public liability, agriculture, cattle, poultry, engineering, aircraft, householders, burglary, money, health, directors and officers liability, office protection shield, jewellers block, portable equipment, etc.

How does an insurance claim work?

In case of a loss faced by the claimant before the expiry of the insurance policy, he or she informs the insurer immediately or before the expiry of the window allowed for the intimation of such instances. When the insurance company receives the information, it guides the insured regarding the proper procedure to be followed in such situations. For assessment of the degree of the peril, a surveyor is assigned by the insurance company. 

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The surveyor is responsible for visiting the insured site of damage or occurrence of the mishap. The surveyors are technically qualified to assess the value of the loss. In health insurance, either the insurer or its third-party administrators survey the insured or those eligible for the cover. Insurance claim only claims to indemnify the loss. Suppose a car meets with an accident, the insurance company only will cover the extent of the loss or sum assured, whichever is applicable. Insured cannot use the claim amount to gain profit over and above the amount of loss incurred. Thus, surveying is a crucial step to assure fair coverage of any mishap. Once the company receives the assessment report, it assures that due payment is made to the insured or his/ her nominees.

What are the principles that guide an insurance claim settlement process?

When a claim request is processed, the claim settlement amount is neither arbitrary, nor the upper limit is necessarily the sum assured. Certain principles of insurance govern the process.

As per the principle of indemnity, when an insurance claim is settled, the only intention is to revert the insured to the financial position he/she held before the mishap. For example, if Adam ensures his mansion against fire and the sum assured is US$1,00,000. Now suppose there is a fire in the basement and there is a loss worth US$25,000, then the insurance claim paid will only be worth US$25,000. Instead of the fire caused losses worth US$1,25,000, then Adam would receive US$1,00,000 only. I suppose the insurance surveyor finds that Adam deliberately put the basement on fire to profit from the insurance claim money. He would not be paid any amount against the claim. This principle does not apply to life insurance claims.

Another principle is the principle of contribution. If an insured like Adam has insured his home for a sum assured of US$50,000 with company A and US$1,00,000 with company B. Then in case of a fire causes losses of US$25,000, Adam cannot claim the total amount from both the companies. An insurance claim will be processed such that the amounts paid by both companies together sum up to US$25,000.  The principle of contribution too applies to general insurance and not life insurance.

Insurance contracts are fiduciary and are based on trust. As per the principle of utmost good faith, while buying a policy, the insured must have disclosed all the relevant information to the insurer to determine the appropriate premium amount. Supposed John has taken a health insurance policy from company A. At the time of taking the policy, when John was only 27 years of age, he had diabetes and was on medication but did not disclose it. A few years later, John raised an insurance claim on the company; however, insurance company refused it because experts tracked diabetes in his medical history during the investigation. Non-disclosure of information and misrepresentation (giving wrong information) may cause claims to be rejected.

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As per the concept of proximate cause, only pre-agreed events are covered. Suppose company X has bought a fire insurance policy. The company’s warehouse storing goods worth US$10,000 caught fire. The next day the goods that were not damaged, which were worth US$3,000, were moved out of the warehouse and left in the open. After a while, a cyclone and heavy rainfall hit the area and destroyed the goods that were left outside. Only goods worth US$1,000 could be recovered safely. So the total loss for company X amounted to US$9,000. However, the insurance claim was accepted only for the amount of US$7,000, which was destroyed in the fire.

How are life insurance claims different from general insurance claims?

All insurance claims are different in terms of the conditions and background in which the policy is taken. In the case of general insurance claims, the payment to the insured may not necessarily be the entire sum assured- it is subject to the assessment of the situation for which the insured bought the insurance cover. However, in life insurance, the insured or his/her nominees will receive the sum assured. Also, when a premium is paid for general insurance, compensation is received only if a mishap occurs. In life insurance policies, the claim is sure on maturity or death, whichever is earlier.

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