Double Insurance and Reinsurance

Double insurance and Reinsurance 

 

Double insurance

Double insurance takes place when an individual or any company secures coverage for a specific property through multiple insurers or by holding multiple policies from the same insurer.
 

Explanation in simple words: -

       Basic knowledge on insurance

Ø the policy holder/ proposer/ insured/ assured - [the person who takes insurance policy for himself or his property].

Ø The policy giver/proposed/insurer/ assurer – [the insurance company or the agent of the insurance company who offers insurance policy].

 
Now, normally the policy holder insures his subject matter from any one insurance company. But if the insured, insures his same subject matter [i.e., himself or his property] to more than one insurance company it is called double insurance.
 
Example:

If a person named ‘RAHUL’ takes insurance policy of his car from 3 different insurance company of 1 lakh each.

 Here Rahul can take more than one insurance policy from three different insurance company or more than one insurance policy from same insurance company for the same subject matter i.e., his car and for the same risk. This is called double insurance.

 

Reinsurance

Reinsurance is a service provided by insurance companies to their counterparts, enabling them to manage substantial losses. In cases where an insurance provider lacks the financial capacity to absorb the full extent of a claim from the insured, they opt for reinsurance. This involves transferring a portion of the risk to another insurer, thereby reducing their exposure.
 
 Explanation in simple words: -
 When a person insures his subject matter to an insurance company and that insurance company feel that the risk amount is too much for it to recover to the insured person than the insurance company divides the insured amount and reinsures the other half amount to another insurance company. This is called Reinsurance.
 
Example:-

 If a person named ‘Rahul’ insures his car to one insurance company ‘X’ of rupees 1 crore. And the insurance company ‘X’ feels that it will not be able to cover the risk of 1 crore to Rahul and therefore the insurance company ‘X’ insures only 50 lakhs and the other 50 lakhs it reinsures to another insurance company ‘Y’.

 Here Rahul will claim the amount of 1 crore from the insurance company ‘x’ only, however it is the duty of the insurance company ‘X’ to recover the other half amount of 50 lakh from the insurance company ‘y’ and recover the claim of amount 1 crore together to Rahul.

 

 

Conclusion:-

In simple terms double insurance is in the hands of the insured/ policy holder. While reinsurance is in the hands of the insurance company/ insurer.