Commutation Agreement Definition & Meaning | Insurance Term | CSIMarket
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Glossary

Commutation Agreement

Insurance Term

A Commutation Agreement is a legal document that is used in the insurance industry to settle open claims and obligations between an insurer and a policyholder. In simple terms, it is a contract that allows the insurer to pay a lump sum amount to the policyholder to settle the outstanding claims or obligations, saving both parties time and money.

The Commutation Agreement typically includes details about the claims and obligations being settled, the payment amount, and the conditions surrounding the payment, such as whether the payment is made upfront or over a period of time. The agreement also outlines the release of any future claims and liabilities associated with the claims or obligations that are being settled.

The use of Commutation Agreements is common in the insurance industry, especially in situations where there are a large number of open claims or obligations that would take a significant amount of time and resources to settle individually. By entering into a Commutation Agreement, both parties can save time and money, and the insurer can reduce its risk exposure by settling all claims and obligations at once.

Overall, Commutation Agreements are an important tool in the insurance industry, allowing insurers and policyholders to efficiently settle outstanding claims and obligations while reducing the risk exposure of the insurer.


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