Simplifying Life Insurance in India
What is the Difference Between Double Insurance and Reinsurance?
There are numerous types of insurance plans providing financial security to diverse entities. In fact, the insurance company can also purchase policies to reduce their risk aspects. A reinsurance plan is one such policy which provides coverage against insurance plans.
However, it is not a double insurance policy which an individual customer purchases to secure extra coverage. There are subtle differences between reinsurance and double insurance policies that you can find below.
What Is Reinsurance?
Due to a high coverage amount, it may become difficult for an insurance company to indemnify financial losses of customers’ insured properties. A reinsurance policy can help an insurer to transfer its risk to another insurance company.
It is a contract between two insurance companies in which a primary insurer gets coverage from a reinsurer to bear the higher claim amount of their end customer.
What Is Double Insurance?
Double insurance refers to the purchase of a second or more than one insurance plan(s) to cover the same item against the same type of loss. Furthermore, terms of all those policies also have to be indifferent to get coverage from respective insurers.
Generally, individuals opt for double insurance to increase coverage against losses. They will get coverage against their primary as well as double insurance plan.
Differences Between Reinsurance And Double Insurance
Following are some major dissimilarities between the double insurance and reinsurance plan:
|
Criteria |
Double Insurance Plan |
Reinsurance Plan |
|
Consumers of the plan |
Individual customers buy one or more double insurance plan(s) to secure the financial loss caused due to the damage of a single object. |
Insurance companies buy a reinsurance policy to share their liabilities (risk) with the reinsurer. |
|
Subject of the plan |
The subject of a double insurance plan is a property or item. |
The subject of a reinsurance policy is the primary insurer’s risk. |
|
Beneficiaries of the plan |
Insurance agencies settle the claimed coverage amount directly with their end customers. |
End customers get the claimed amount from their insurance companies, not from the reinsurer. Reinsurers are liable to provide coverage only to their client insurance companies. |
|
Settlement of coverage |
All the insurance companies will share the total loss according to the proportion of the insured amount. |
The reinsurer provides coverage to the primary insurance company according to the predetermined conditions of the policy. |
|
Compliance of customers |
Individuals need to clearly state the double insurance providing agency about the existing policy against the same object. After getting its consent, the double insurance policy will become valid. |
Individuals do not need to contact the reinsurer. Instead, their insurance companies oversee the reinsurance agreement and its terms and conditions. |
|
Example |
Let’s assume that the sum insured for the 1st and double insurance plans are respectively ₹ 4 Lakhs and ₹ 6 Lakhs, and the coverage amount is ₹ 12 Lakhs. In such a scenario, if the policyholder incurs a financial loss amounting ₹ 5 Lakhs, they will get coverage of ₹ 2 Lakhs and ₹ 3 Lakhs respectively, against the 1st and double insurance plans. |
Let’s assume that an insurance company ABC sells fire insurance policies to a large-scale company. If ABC takes a reinsurance policy against that fire insurance plan, a certain percentage of total risk will get distributed with that reinsurer. For example, if the risk-sharing percentage is 25% and the claimed amount of a customer is ₹ 40 Crores, the primary insurer will get ₹ 10 Crores from the reinsurer. |
Now that you know the differences between reinsurance and double insurance, you can clearly assess which one will benefit you in terms of securing you against financial loss.
Whereas reinsurance allows an insurance company to reduce its risk factors, double insurance can help you fully cover the loss incurred due to the damage to your insured property. If the insured amount is lower than the resale value of your item, you can purchase a double insurance policy to ensure adequate coverage.
FAQs About the Differences Between Reinsurance And Double Insurance
What are the types of reinsurance plans?
There are two types of reinsurance policies, as mentioned below:
- Treaty Reinsurance Plan
- Facultative Reinsurance Plan
What are the different clauses of a double insurance policy that you must be aware of before purchasing it?
What is a notification clause of a double insurance plan?
Can a customer get more than the total loss owing to the active double insurance plan?
Other Important Articles Related to Reinsurance
Important Guides related to Life Insurance
Disclaimer
- This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
- All the figures reflected in the article are for illustrative purposes. The premium for Coverage that one buys depends on various factors including customer requirements, eligibility, age, demography, insurance provider, product, coverage amount, term and other factors
- Tax Benefits, if applicable depend on the Tax Regime opted by the individual and the applicable tax provision. Please consult your Tax consultant before making any decision.
