Business StudiesISC Class 11 · Business Risks and Insurance

Contribution, Subrogation, Double Insurance and Types of Insurance: ISC Class 11

Q: Is double insurance illegal?

No, but recovery is limited to actual loss.

Q: Is health insurance indemnity?

Generally yes, for the cost incurred.

Updated 17 October 2026 · Fact-checked

Under contribution, when one risk is insured with several insurers (double insurance), each pays in proportion to the sum it insured and the insured cannot recover more than the actual loss in all. Under subrogation, after paying a claim, the insurer steps into the insured's shoes to recover from a third party who caused the loss. Re-insurance is the insurer sharing its risk with another insurer.

Each insurer pays loss × its sum insured ÷ total sums insured, so together they pay only the actual loss, never more.

Illustration drawn for QuestionBuddy.

Understand Contribution, Subrogation, Double Insurance, Re-insurance and Types of Insurance

Double insurance. The same subject matter is insured with two or more insurers for the same risk. It is allowed, but the insured cannot claim more than the actual loss in total.

Contribution. Each insurer bears the loss in proportion to the sum insured by it (when the policies are of the same kind and cover the same risk). The insured may claim the whole loss from any one insurer, who then recovers the proportionate share from the others. It applies only to indemnity contracts.
Share of insurer = Loss x (Its sum insured / Total sums insured).

Subrogation. After the insurer pays the claim, it takes over the insured's rights against the person responsible for the loss. The insured cannot recover from both the insurer and the third party. Purpose: prevent profit from loss and make the wrongdoer liable.

Re-insurance. An insurer, to reduce its own risk on a large policy, transfers part of it to another insurer. The original insurer remains liable to the insured. Double insurance is by the insured; re-insurance is by the insurer.

Types of insurance.

*Life insurance (assurance):* payment on death or maturity; a contract on a certain event, not indemnity. Types: whole life, endowment, term.
*Fire insurance:* loss of property by fire.
*Marine insurance:* ship, cargo and freight at sea.
*Motor, health, accident, crop, cattle and other general insurance.*

Assurance vs insurance. Assurance covers events certain to occur (death); insurance covers events that may or may not occur (fire). Life assurance gives the sum assured on death or maturity; general insurance pays the actual loss.

Premium. Paid by the insured to the insurer; the policy is the written contract.

Contribution, Subrogation, Double Insurance, Re-insurance and Types of Insurance: key facts

Contribution: Share = Loss x Own sum insured / Total sum insured | For each insurer; Same risk, same property.
Total claim: Total recovery <= Actual loss | Even with double insurance; Indemnity limit.
Subrogation: Insurer recovers up to claim paid | From the third party responsible; No double recovery.

How to answer Contribution, Subrogation, Double Insurance, Re-insurance and Types of Insurance questions

Identify which principle applies and compute shares.

1Find the actual loss and the sums insured by each insurer.
2Apply the proportion for contribution.
3Check that the total does not exceed the loss.
4For subrogation, state who recovers from whom.

Contribution, Subrogation, Double Insurance, Re-insurance and Types of Insurance in real life

The idea, met in an everyday situation. Answer the question in your own words, then compare with the model answer. The one-line hook is what to remember.

Subrogation

Suppose a customer's car, insured, is hit by a negligent lorry driver and the insurer pays Rs 80,000 for repairs.

Who can claim from the lorry owner?

Try it first, then show the solutionSolution

The customer has already been indemnified.
The insurer is subrogated to the customer's right to claim from the lorry owner.

Answer: The insurer recovers the Rs 80,000 from the lorry owner.

Memory hook: The insurer steps into the insured's shoes.

Tricks to remember Contribution, Subrogation, Double Insurance, Re-insurance and Types of Insurance

Short memory aids. Say each one aloud once, then use it on a question the same day.

Contribution = shares
Several insurers share the loss in proportion to the sums insured.
Use it when: Contribution.
Subrogation = substitute
Insurer substitutes for the insured against the wrongdoer.
Use it when: Subrogation.
Re = insurer shares
Re-insurance is the insurer insuring itself.
Use it when: Re-insurance.

Contribution, Subrogation, Double Insurance, Re-insurance and Types of Insurance: solved examples

Ordered from board level to HOTS. Try each one before you open the solution.

Example 1: Re-insurance · 1 mark · MCQBoard level

Re-insurance means:
(a) the insured buys a second policy (b) the insurer transfers part of its risk to another insurer (c) the policy is renewed (d) the premium is refunded

Try it first, then show the solutionSolution

The insurer shares its risk with another insurer.

Answer: (b) the insurer transfers part of its risk to another insurer

Example 2: Assurance vs insurance · 3 marks · Short answerBoard level

Distinguish between life assurance and fire insurance on three points. (3 marks)

Try it first, then show the solutionSolution

Event: certain (death) vs uncertain (fire).
Indemnity: not applicable vs applicable.
Amount: sum assured vs actual loss.

Answer: Life assurance covers a certain event and pays the sum assured, not indemnity; fire insurance covers an uncertain event and pays the actual loss up to the sum insured.

Example 3: Contribution · 5 marks · Long answerHarder board level

A shop is insured against fire with insurer A for Rs 3,00,000 and with insurer B for Rs 2,00,000. A fire causes a loss of Rs 2,50,000. Find what each pays. If A is first approached and pays the whole, what does it recover from B? (5 marks)

Try it first, then show the solutionSolution

Total sums insured = 5,00,000.
A pays 2,50,000 x 3/5 = Rs 1,50,000; B pays 2,50,000 x 2/5 = Rs 1,00,000.
If A pays Rs 2,50,000, it recovers Rs 1,00,000 from B.

Answer: A Rs 1,50,000; B Rs 1,00,000; A recovers Rs 1,00,000 from B if it paid in full.

Example 4: Contribution when total insurance exceeds value (double insurance) · 5 marks · Long answerHarder board level

A building is worth Rs 5,00,000 and is insured with X for Rs 4,00,000 and with Y for Rs 3,00,000. A fire loss is Rs 2,10,000 (the average clause does not apply because total insurance exceeds the value). Find what each pays, and the loss if the building were destroyed completely. (5 marks)

Try it first, then show the solutionSolution

Total insured = 7,00,000.
X pays 2,10,000 x 4/7 = 1,20,000; Y pays 2,10,000 x 3/7 = 90,000.
Complete destruction: the actual loss is 5,00,000, split 5,00,000 x 4/7 = 2,85,714 (X) and 5,00,000 x 3/7 = 2,14,286 (Y); each within its sum insured.

Answer: Fire loss: X Rs 1,20,000, Y Rs 90,000. Total loss: X about Rs 2,85,714, Y about Rs 2,14,286, total Rs 5,00,000.

Example 5: Subrogation case · 4 marks · Short answerHOTS / competency

A truck insured for Rs 6,00,000 is damaged by a negligent driver; the repair cost is Rs 2,40,000. The insurer pays and the owner then claims Rs 2,40,000 from the driver as well. Apply subrogation and indemnity to explain the owner's position. (4 marks)

Try it first, then show the solutionSolution

The owner has already been indemnified for Rs 2,40,000.
Claiming again would give profit from loss, against indemnity.
By subrogation the insurer, not the owner, has the right to recover from the driver.

Answer: The owner cannot recover again; the insurer is subrogated and recovers Rs 2,40,000 from the driver.

Where students lose marks in Contribution, Subrogation, Double Insurance, Re-insurance and Types of Insurance

The slips examiners see most often, and what to write instead.

Mistake: Dividing the loss equally between insurers
Ignoring the sums insured.
Wrong working
1,25,000 each
Right working
1,50,000 and 1,00,000
Do this: Use proportion to sums insured.
Usually costs: 2 marks.
Mistake: Applying contribution to life policies
Treating as indemnity.
Wrong working
Two life policies share the sum assured
Right working
Each life policy pays in full
Do this: Contribution is for indemnity contracts only.
Usually costs: 1-2 marks.
Mistake: Confusing re-insurance with double insurance
Both involve two insurers.
Wrong working
Double insurance is done by the insurer
Right working
Double insurance is by the insured; re-insurance by the insurer
Do this: Say who takes the second cover.
Usually costs: 1 mark.

Exam tips

State the principle, then apply it with figures.
For contribution, show each insurer's share in a small table.
Mention that these principles prevent profit from loss.

Practice questions on Contribution, Subrogation, Double Insurance, Re-insurance and Types of Insurance

Write each answer on paper first. Open the hint only if you are stuck, and the answer only when you have finished.

Q1 · 1 mark · MCQBoard level
The principle under which the insurer recovers from a negligent third party is:
(a) contribution (b) subrogation (c) indemnity (d) causa proxima
Hint
Steps into the insured's shoes.
Answer
(b) subrogation
Q2 · 3 marks · Short answerBoard level
Distinguish between double insurance and re-insurance. (3 marks)
Hint
Who takes the cover.
Answer
In double insurance the insured takes policies from more than one insurer on the same subject matter; in re-insurance an insurer passes part of its risk to another insurer. Contribution operates in double insurance.
Q3 · 4 marks · Short answerHarder board level
Goods worth Rs 9,00,000 are insured with P for Rs 4,00,000, Q for Rs 6,00,000 and R for Rs 2,00,000. A fire destroys goods worth Rs 3,60,000. Find the share of each insurer. (4 marks)
Hint
Total insured = 12,00,000.
Answer
P: 3,60,000 x 4/12 = 1,20,000; Q: 3,60,000 x 6/12 = 1,80,000; R: 3,60,000 x 2/12 = 60,000; total Rs 3,60,000.
Q4 · 6 marks · Long answerHarder board level
A consignment valued at Rs 10,00,000 is insured for Rs 6,00,000 with M and Rs 4,00,000 with N. A part is damaged at sea with a loss of Rs 2,50,000. M pays the claim in full. Find the amount M recovers from N, and what happens if M had insured only Rs 5,00,000 (value Rs 10,00,000, average clause). (6 marks)
Hint
N pays 4/10.
Answer
N's share = 2,50,000 x 4/10 = Rs 1,00,000; M bears Rs 1,50,000. If only M had insured Rs 5,00,000 for Rs 10,00,000 value, the claim under average = 2,50,000 x 5/10 = Rs 1,25,000.
Q5 · 3 marks · Short answerHOTS / competency
A fire destroys goods insured with two insurers. The owner claims the full amount from both, arguing that each policy is independent. Evaluate, with a loss of Rs 80,000, sums insured Rs 1,00,000 and Rs 1,00,000. (3 marks)
Hint
Contribution and indemnity.
Answer
He cannot recover Rs 1,60,000. By indemnity, the total is limited to Rs 80,000, and by contribution each insurer pays Rs 40,000.

Test your recall

Answer in your head or on paper first, then open the card. Pulling an answer out of memory makes it stick far better than re-reading.

1.Contribution applies to?Show answer
Double insurance under indemnity contracts.
2.Subrogation prevents?Show answer
Double recovery.
3.Re-insurance is done by?Show answer
The insurer.
4.Life assurance pays on?Show answer
Death or maturity.
5.Marine insurance covers?Show answer
Ship, cargo and freight.

Contribution, Subrogation, Double Insurance, Re-insurance and Types of Insurance: frequently asked questions

Is double insurance illegal?

No, but recovery is limited to actual loss.

Does life insurance have contribution?

No.

Who pays the premium?

The insured.

Is health insurance indemnity?

Generally yes, for the cost incurred.