Massachusetts Health & Accident Insurance Practice Exam

What is the definition of subrogation in insurance?

1. The process of figuring premium costs

2. The right for an insurer to pursue a third party that caused a loss

3. A method for calculating policy exclusions

4. Insurance coverage for liability claims

The correct answer is: The right for an insurer to pursue a third party that caused a loss

Subrogation in insurance is specifically defined as the right for an insurer to pursue a third party that caused a loss. This process enables the insurer to step into the shoes of the insured after they have settled a claim. When an insurance company pays for a loss incurred by the policyholder, it may then seek compensation from the third party that was responsible for the loss. This mechanism serves several purposes: it helps to ensure that the responsible party ultimately bears the financial burden of the claim, it allows the insurer to recover costs that would otherwise be a complete loss, and it keeps insurance premiums lower for policyholders since the insurer can recoup some of its expenses. In contrast, exploring the other options, figuring premium costs is related to risk assessment and underwriting but does not involve the concept of subrogation. Policy exclusions detail what is not covered under a policy, which is again unrelated to subrogation. Lastly, liability claims pertain to the coverage itself rather than the process of recovering losses from third parties.