What is defined as a settlement in insurance terms?

In insurance terms, a settlement refers to an agreement reached between the insurer and the insured (or a third party) to resolve a claim or dispute. This often involves the insurer paying a specified amount to the claimant or the insured in exchange for releasing the insurer from further liability related to that claim. Settlements serve as a resolution to claims without the need for a protracted legal process, which can be both time-consuming and costly.

By defining the act of settling in this way, it captures the essence of negotiation and compromise that is critical in the insurance industry. Settlements also facilitate quicker closure for all parties involved, making it a practical and common practice within claims management.

The other options describe different aspects of the insurance claims process. For example, determining liability is a step taken prior to a settlement but does not itself constitute a settlement. Adjusting premium rates refers to modifying the costs of coverage and is unrelated to resolving claims. A formal rejection of a claim is a notification that the claim is not valid or covered; this also does not signify a resolution. Understanding these distinctions is important for grasping how settlements function within the broader context of insurance claims handling.