When a policy holder makes a claim against an insurance policy after suffering a loss and the insurance company accepts the claim as valid, it will make a payment or repair the damaged article. For example a car damaged through a car accident can either be repaired or a monetary payment can be made. This process is called a settlement.

The word settlement is also used to describe an agreement, determination or payment reached as a result of legal action or threatened legal action. This could relate to insurance or any other legal proceedings. The word settlement indicates that it is a final agreement between the two parties, for example if the insurance company and the insured settle on a certain amount, the insured cannot claim a further amount after having accepted the settlement amount.

Settlement options are available in the case of life insurance – the insured can choose how he wants the payments made and he has various options available to him. In short term insurance the insured do not have the right to any settlement options, the insurer decides on whether a damaged item, such as a car, will be repaired or if a payment will be made as compensation for the loss or damage.