Optional Settlement Clause
What Does Optional Settlement Clause Mean?
An optional settlement clause is a provision in an insurance contract that allows the policyholder to choose from several different settlement options if a covered loss occurs. For example, if a homeowner’s insurance policy includes an optional settlement clause, it may give the policyholder the option to have their home repaired or replaced, depending on the extent of the damage.
Insuranceopedia Explains Optional Settlement Clause
Optional settlement clauses can be crucial when a policyholder experiences a loss. For instance, if an auto policy includes an optional settlement clause that allows the policyholder to choose between having their car repaired or replaced at its actual cash value, this means they would not be reimbursed for the full replacement value of the car. The specific terms of an optional settlement clause can be negotiated between the policyholder and the insurer before the policy is purchased.
