Optional Settlement Clause

Updated: 11 March 2024

What Does Optional Settlement Clause Mean?

An optional settlement clause is a clause in an insurance contract that gives the policyholder an option to have his or her settlement made in several different ways if a covered loss is incurred. For example, if a homeowner’s insurance contract has an optional settlement clause, it may give the policyholder an option to have his or her home repaired, or replaced, depending on the extent of the losses.

Insuranceopedia Explains Optional Settlement Clause

Optional settlement clauses can be extremely important if a policyholder experiences a loss. For example if an auto policy has an optional settlement clause that states that a policyholder has an option to have his or her car repaired or replaced at the actual cash value, then this means that he or she would not be reimbursed up to the replacement value of the car. The exact terms of an optional settlement clause can be negotiated between a policyholder and an insurer before the policy is purchased.

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