An offset provision is a clause in an insurance policy that allows the insurer to reduce the amount of benefits paid out to a policyholder in certain situations. It can come into effect when the policyholder receives benefits from other sources that are related to the same claim, such as workers’ compensation or disability benefits.
For example, if a policyholder is injured in a car accident and receives benefits from their car insurance policy, but also receives disability benefits through their employer, the offset provision may allow the insurer to reduce the amount of benefits paid out to the policyholder by the amount received from the disability benefits. This is done to prevent the policyholder from receiving a double payout for the same injury.
Purpose of Offset Provision:
The point of an offset provision is to prevent individuals from receiving double compensation for the same damages or losses. In the context of insurance, an offset provision allows an insurance company to reduce the amount it pays out in benefits if the policyholder receives compensation from another source for the same loss or injury.
For example, if a person is injured in a car accident and has both health insurance and personal injury protection (PIP) insurance, the offset provision in the PIP policy may reduce the benefits paid out by the amount that the person receives from their health insurance. This prevents the person from receiving more compensation than the actual cost of their medical bills.
Offset provisions are also common in other types of insurance policies, such as disability insurance and workers’ compensation insurance. In these policies, the offset provision allows the insurance company to reduce the amount of benefits paid out if the policyholder receives compensation from other sources, such as Social Security disability benefits or a settlement from a lawsuit related to the injury or illness.