Difference Wiki

Double Insurance vs. Reinsurance: What's the Difference?

Edited by Sawaira Riaz || By Sumera Saeed || Updated on October 13, 2023
Double insurance involves a person taking out two insurance policies for the same subject and risk, while reinsurance is where an insurer transfers portions of risk portfolios to another party to reduce the likelihood of paying a large obligation.

Key Differences

Double insurance transpires when an individual or entity obtains two insurance policies for the same subject, assuring the same interests and risks. Contrarily, reinsurance is a practice where an insurance company transfers a portion of its risks to another insurer. While double insurance pertains to the policyholder securing excessive insurance cover, reinsurance focuses on an insurance provider seeking a way to manage its risk portfolio.
Sumera Saeed
Oct 13, 2023
Both concepts, double insurance and reinsurance, operate on varied principles and impact different parties within the insurance framework. In double insurance, the policyholder pays premiums on two or more policies, potentially claiming from each in the event of loss. Reinsurance, however, doesn’t directly affect the original policyholder but rather changes the dynamics between insurance companies by spreading the risks among them.
Sumera Saeed
Oct 13, 2023
Double insurance becomes pertinent when an insured party seeks to gain additional assurance or security by subscribing to multiple policies. However, reinsurance is not concerned with adding layers of security for policyholders but serves to safeguard insurance companies against colossal claims or accumulated losses by distributing risks. Here, the original insurer maintains its relationship with the policyholder, but reduces its risk by passing some of it to another insurer.
Sumera Saeed
Oct 13, 2023
Despite their varied applications, double insurance and reinsurance are bound by regulations to prevent fraudulent claims or intentional malpractice. Double insurance often entails the contribution principle, where insurers share the compensation cost. Reinsurance, however, requires adherence to strict guidelines, ensuring that the reinsurer comprehends and agrees to absorb the specified risks from the ceding company and that the arrangement is adequately documented.
Aimie Carlson
Oct 13, 2023

Comparison Chart

Definition

Insurance taken by a policyholder with two companies.
A practice where an insurer transfers a part of its risk to another insurer.
Sumera Saeed
Oct 13, 2023
ADVERTISEMENT

Aim

To provide additional security to the policyholder.
To reduce the liability of the original insurer.
Sumera Saeed
Oct 13, 2023

Beneficiary

The policyholder, in securing additional assurance.
The original insurer, in mitigating potential losses.
Sumera Saeed
Oct 13, 2023

Premium Payment

Policyholder pays premiums on all taken policies.
The original insurer pays a premium to the reinsurer.
Harlon Moss
Oct 13, 2023

Claim Settlement

Contribution principle may be applied among insurers.
The reinsurer compensates the original insurer based on agreed-upon terms.
Sumera Saeed
Oct 13, 2023

Double Insurance and Reinsurance Definitions

Double Insurance

Double insurance occurs when identical risks on an asset are insured with two policies.
John secured double insurance for his property with two different insurers to enhance his coverage.
Sumera Saeed
Oct 13, 2023
ADVERTISEMENT

Reinsurance

Reinsurance is the practice where an insurer transfers some of its risks to another insurer.
To safeguard against substantial claims, Omega Insurance entered into a reinsurance agreement with Delta Insurance.
Sawaira Riaz
Oct 13, 2023

Double Insurance

Double insurance allows a policyholder to claim from any insurer in proportion to the extent of their respective liabilities.
After the fire, Lisa was able to claim the damages from both of her policies under double insurance.
Sawaira Riaz
Oct 13, 2023

Reinsurance

Reinsurance can be treaty (covering multiple policies) or facultative (covering specific individual risks).
Skyline Insurance preferred facultative reinsurance to manage high-risk policies individually, ensuring targeted risk management.
Aimie Carlson
Oct 13, 2023

Double Insurance

Double insurance doesn’t allow the policyholder to profit from the insured event.
Although Harry had double insurance, he could not receive compensation exceeding the actual loss incurred.
Sumera Saeed
Oct 13, 2023

Reinsurance

Reinsurance enables an insurance company to reduce its exposure to a particular risk by sharing it.
Following a catastrophic event, Stellar Insurance was grateful for its reinsurance policy, which mitigated its financial liability.
Harlon Moss
Oct 13, 2023

Double Insurance

Double insurance is not illegal but must be disclosed to the insurers involved.
Caroline made sure to inform both insurers about the existence of double insurance on her artwork.
Aimie Carlson
Oct 13, 2023

Reinsurance

Reinsurance does not alter the original contract between the insured party and the insurance company.
Despite their reinsurance policy, Horizon Insurers still dealt directly with policyholders and managed all claims processing.
Harlon Moss
Oct 13, 2023

Double Insurance

In double insurance, claims are often adjusted between insurers through the principle of contribution.
Upon loss, the two companies, due to double insurance, shared the settlement payout for David's claim.
Sumera Saeed
Oct 13, 2023

Reinsurance

Reinsurance involves a reinsurer accepting part of the risk of a policy issued by the original insurance company.
Pinnacle Insurance transferred 50% of its risk in a particular policy through a reinsurance agreement with Vertex Insurers.
Sumera Saeed
Oct 13, 2023

Reinsurance

To insure again, especially by transferring all or part of the risk in a contract to a new contract with another insurance company.
Sumera Saeed
May 03, 2020

Reinsurance

Insurance purchased by insurance companies that spreads the risk associated with selling insurance around so the danger of one large monetary loss is minimized.
Sumera Saeed
May 03, 2020

FAQs

What is double insurance?

Double insurance occurs when one insures the same risk with two insurance companies.
Sumera Saeed
Oct 13, 2023

Is double insurance legal?

Yes, double insurance is legal but should be disclosed to all insurers involved.
Sawaira Riaz
Oct 13, 2023

Does reinsurance affect policyholders?

Typically, no. Policyholders deal directly with their original insurer despite any reinsurance arrangements.
Sumera Saeed
Oct 13, 2023

Why do companies opt for double insurance?

Companies might choose double insurance for additional security and wider coverage.
Sara Rehman
Oct 13, 2023

How does reinsurance safeguard an insurance company?

Reinsurance disperses risk, helping insurance companies avoid devastating financial loss from high-value claims.
Janet White
Oct 13, 2023

What is facultative reinsurance?

It covers specific risks or policies, often those that are exceptionally high-risk.
Sumera Saeed
Oct 13, 2023

Can you claim from both policies in double insurance?

Yes, but total compensation can't exceed the loss, often adhering to the principle of contribution.
Sumera Saeed
Oct 13, 2023

Who benefits directly from reinsurance?

The original insurer benefits by mitigating potential large losses.
Sumera Saeed
Oct 13, 2023

Can an individual take double insurance on property?

Yes, an individual can take double insurance but must adhere to regulatory stipulations.
Harlon Moss
Oct 13, 2023

Can reinsurance be bought for any type of original insurance?

Generally, yes. Reinsurance can be utilized across various insurance types and policies.
Sumera Saeed
Oct 13, 2023

What is reinsurance?

Reinsurance involves one insurance company transferring risk to another to minimize liability.
Janet White
Oct 13, 2023

Can one policy be both double insured and reinsured?

Yes, a policy can be subject to double insurance and also be reinsured.
Sumera Saeed
Oct 13, 2023

How does double insurance benefit the policyholder?

It provides additional coverage and assurance, though claims cannot exceed the actual loss.
Janet White
Oct 13, 2023

What is the contribution principle in double insurance?

Insurers share the payout of a claim in proportion to the liability each has assumed.
Harlon Moss
Oct 13, 2023

Can a policyholder demand double insurance?

Policyholders can opt for it, but must adhere to the insurers’ terms and regulatory guidelines.
Aimie Carlson
Oct 13, 2023

How does reinsurance stabilize the insurance market?

By spreading risks among multiple entities, reinsurance ensures that no single company bears excessive burden, maintaining market stability.
Sumera Saeed
Oct 13, 2023

What happens in the event of a claim under reinsurance?

The original insurer handles the claim and is then partially compensated by the reinsurer as per their agreement.
Janet White
Oct 13, 2023

Is reinsurance necessary for all insurance companies?

Not obligatory, but it's often utilized to manage and distribute risk efficiently.
Aimie Carlson
Oct 13, 2023

Who pays the premium in a reinsurance agreement?

The original insurance company pays a premium to the reinsurer.
Harlon Moss
Oct 13, 2023

Why might an individual or entity avoid double insurance?

To prevent paying multiple premiums and navigating complex claim processes.
Sumera Saeed
Oct 13, 2023
About Author
Written by
Sumera Saeed
Sumera is an experienced content writer and editor with a niche in comparative analysis. At Diffeence Wiki, she crafts clear and unbiased comparisons to guide readers in making informed decisions. With a dedication to thorough research and quality, Sumera's work stands out in the digital realm. Off the clock, she enjoys reading and exploring diverse cultures.
Edited by
Sawaira Riaz
Sawaira is a dedicated content editor at difference.wiki, where she meticulously refines articles to ensure clarity and accuracy. With a keen eye for detail, she upholds the site's commitment to delivering insightful and precise content.

Trending Comparisons

Popular Comparisons

New Comparisons