What is "subrogation" in the context of insurance?

Subrogation is an essential concept in insurance that allows an insurer to pursue a third party that caused a loss to recover costs paid to the policyholder. When an insurance company pays out a claim for damages or losses, it can then step into the shoes of the insured and seek reimbursement from the party at fault. This process helps insurers maintain financial stability by ensuring that they do not bear the total cost of claims when another party is responsible.

In practical terms, if an insured individual gets into an accident caused by someone else, their insurance would cover the damages, and then the insurer may seek to recover that amount from the at-fault party’s insurer or directly from the party itself. This process helps reduce the overall cost of premiums since it mitigates the insurer's losses from claims.

The other options refer to different aspects of insurance. For instance, calculating premium rates considers various risk factors rather than involving responsibility for a claim. Life insurance policies specifically pertain to life coverage, and determining claim payouts involves assessing the validity and amount of claims rather than the recovery of costs from a third party.