How To Calculate Contribution In
Insurance
Methods To Calculate Contribution In Insurance
If we want to Calculate Contribution In Insurance, then a few things should be checked.
Once it is established that the factors which influence the application of the principle of
contribution – are satisfied and contribution is to apply then the next course is to find out
the liability under each insurance policy. Usually, this is on the sum-insured basis under
each policy and is commonly known as proportionate liability or respective liability of
each policy.
The formula applied to Calculate Contribution In Insurance is = (Sum-insured under each policy x
Loss)/ Total sum-insured under all policies. Lets have a look on some examples:
Example 1 To Calculate Contribution In Insurance :
Policy A … Sum-insured… $ 1000
Policy B … Sum-insured …$ 2000
Policy C … Sum-insured …$ 4000
Say, Loss $ 700, then
Policy A pays, (1000×700)/7000=$100
Policy B pays, (2000×700)/7000=$200
Policy C pays, (4000×700)/7000=$400; total pay equals the loss $700
Example 2 To Calculate Contribution In Insurance:
Policy A … Covers property I ……….…Sum-insured $ 1000
Policy B … Covers property II & III …. Sum-insured $ 2000
Policy C … Covers property II & III …. Sum-insured $ 4000
Say, Loss $ 333 to property II , then
Policy A does not contribute anything as property II is not covered.
Policy B &C only contribute as property II is covered.
Policy B pays, (2000×333)/6000=$111
Policy C pays, (4000×333)/6000=$222; total pay equals the loss $333
Example 3 To Calculate Contribution In Insurance:
Policy Property Sum Insured Policy Period Perils Covered
A I 1000 1.1.16 to 31.12.16 Fire
B I 1000 -Do- Lightning
C I 1000 -Do- Fire
D II 1000 -Do- Fire
E I 1000 1.1.16 to 30.6.16 Fire
Say, Loss $500 to Property II by Fire on 2.7.16.
On careful observance it would be noticed that the policies are not exactly identical. There is
difference of property, policy period and perils in some of the policies. The contribution will be as
follows : Policy B does not come into picture as it does not cover fire, policy D does not come into
picture as it does not cover property I. Policy E does not come into picture as the loss took place after
the expiry of the policy. Therefore, only policies A and C contribute to the loss as under :
Policy A Pays, (1000 X 500)/2000=$ 250
Policy C Pays, (1000 X 500)/2000=$ 250, total pay equals the loss $500
