Articles 489 views September 30, 2020

Difference Between Double Insurance and Reinsurance

Insurance is basically the transfer of risks from the insured to the insurer. It can be a health risk, property risk, or a life risk. So, in order to get a cover an individual goes for an insurance plan. But there are some individuals who are unaware of the difference between double insurance and reinsurance. So, in this article, you can explore all the major differences between a Double Insurance vs Reinsurance. In double insurance, a common risk is borne by different insurers and in reinsurance, the risk is transferred to a different insurer. Let’s explore the differences between both of these insurance plans.

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Double Insurance vs Reinsurance

Basis of DifferenceDouble InsuranceReinsurance
MeaningIn double insurance, the same risk is insured with different insurance companies or more than one insurance company.In the reinsurance, the risk or a part of the risk is transferred to another insurance company. The risk remains the same.
SubjectThis insurance is basically taken for properties having a high value.This insurance covers the risk of the original insurer.
ClaimYou can make a claim to all the insurance companies for compensation.In this insurance, you will have to claim from the original insurer and it will claim from the reinsurer.
LossThe loss will be shared by all the insurance companies from which you have taken the insurance.The reinsurer will only be liable to pay the proportion of the reinsurance.
GoalThe main goal of this insurance plan is to assure the benefit of insurance.The main goal of this insurance is to reduce the risk of the insurer.
Interest of InsuredThe insured has an insurable interest in this kind of plan.The insured doesn’t have an insurable interest in this kind of plan.
Insured ApprovalThe insured approval is needed in double insurance.The consent of the insured is not needed in Reinsurance because it is done on the insurer’s end.

Double Insurance

Double insurance can be explained as the risk that is covered by different insurers. In this insurance, the individual takes different insurance policies from different insurance companies to cover the same risk. If in case the insured faces a huge loss then he can claim the insurance amount from different insurance companies.

All the insurers will be liable to compensate the insured for the loss. But the compensation amount provided by all the insurance companies can be never more than the loss occurred. All the insurers will contribute to the actual loss proportionately and there will be no burden only on one company.

Reinsurance

Sometimes, an insurance company becomes incapable to handle huge losses. Therefore, they transfer a part of a risk to another insurance company and they handle the risk jointly. So, this whole activity is known as Reinsurance.

Most of the insurance companies go for reinsurance when they are unable to cover a huge risk. On the other hand, if the insurance amount is too high then it becomes necessary for the insurer to consult another insurer for the insurance.

Conclusion

Now you know the key difference between double insurance and reinsurance. So, depending upon the risk of the subject you can take double insurance. Talking about the insurer, if you are unable to manage the risk of the insured then you can consult another insurance company for covering a partial risk and reinsuring the subject.

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