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It is common to confuse Double Insurance with Reinsurance. This article aims to give you complete clarity on what both these terms mean, as well as the difference between double insurance and reinsurance.
But before we get to their difference we need to understand what each term means.
Double insurance is two or more insurance companies cover the same risk. This is where the insured buys two or more insurance policies from two or more insurance companies covering the same insured object.
An example of double insurance would be that an individual would buy 2 or more health insurance policies for himself. Both policies are bought from different companies.
Reinsurance provides insurance to insurance companies. Let us decompress this a little further. At times an insurance company insures huge projects like real estate projects, marine engineering projects, civil engineering projects, etc. These huge projects increase the risk exposure of the insurance company.
That company suspects that if there is a claim made, it may not be able to service it. So what is the solution to this issue? This is where reinsurance comes into play. The insurance company will enter into a reinsurance contract with another insurance company (generally larger than itself) and the reinsurance company will insure against any loss that the insurance company may face due to claims made.
Reinsurance basically transfers the risk from the insurance company to the reinsurance company.
|Comparison Term||Reinsurance||Double Insurance|
|Meaning||This is where the insurance company transfers its risk to a reinsurance company.||This is where an insured takes 2 or more insurance policies with 2 or more insurance companies covering the same risk.|
|Risk Bearing||Risk is borne by the insurance company||Risk is borne by the reinsurance company|
|Done By Whom||Insurance is done by insurance company||Insurance is done by reinsurance company|
|Objective||To insure the insured||To insure the insurance company|