Illinois Health Insurance Practice Exam

What is the term for when an insurance organization pays a claim and then seeks reimbursement from another party?

1. Subrogation

2. Indemnification

3. Reconciliation

4. Restitution

The correct answer is: Subrogation

The correct term for when an insurance organization pays a claim and then seeks reimbursement from another party is subrogation. This process allows insurers to recoup costs by pursuing a third party that may have been responsible for the loss. For example, if an insurance company covers damages from a car accident, it may then seek compensation from the at-fault driver's insurance. Indemnification, while related to insurance, specifically refers to the compensation for damage or loss that insured individuals receive. It does not involve the insurer going after a third party for reimbursement. Reconciliation is a broader financial term that refers to the process of ensuring two sets of records are in agreement, and is not specific to insurance claims or recovery. Restitution generally involves returning an item or money to the rightful owner or compensating someone for their loss but does not specify the process of recovery after an insurer has paid a claim. Understanding subrogation is vital as it highlights how insurance companies manage their risk and financial liability after settling claims.