Reinsurance is a type of insurance policy, mainly purchased by the insurance companies. Reinsurance is the contract between the insurance company and a third party company, in which the insurance company pays the premiums to the third party, in exchange to receive benefits when huge loss occurs. Here the third party means another insurance company.
Reinsurance is purchased by the insurance company to transfer the risk from insurance holder to another insurance company. It is very useful to the insurance company, when there will be heavy loss due to the natural disaster.
For example: In big cities all the individuals are holding home insurance policy provided by an insurance company. Then suddenly a big earthquake occurred, due to which many buildings are collapsed. In such case, all the people want their insurance benefits. It is a heavy risk for that insurance company to pay money for all the policy holders. In such type of cases the insurance company transfer their policy holders loss to the reinsurance company.
With the help of reinsurance, insurance holder gets guarantee benefits from their policy as well as insurance company, minimizing the risk.
Reinsurance is mainly divided into two categories they are
1. Finite reinsurance
Finite reinsurance is reinsurance policy that covers a finite proportion of loss of the insurance company. That means when huge lose occurs for the insurance company, the insurance company recovers reinsurance only for the stated proportion from it's reinsurance company.
2.Financial reinsurance
Life insurance companies takes this type of reinsurance to keep profits form one year to next.
Reinsurance is purchased by the insurance company to transfer the risk from insurance holder to another insurance company. It is very useful to the insurance company, when there will be heavy loss due to the natural disaster.
For example: In big cities all the individuals are holding home insurance policy provided by an insurance company. Then suddenly a big earthquake occurred, due to which many buildings are collapsed. In such case, all the people want their insurance benefits. It is a heavy risk for that insurance company to pay money for all the policy holders. In such type of cases the insurance company transfer their policy holders loss to the reinsurance company.
With the help of reinsurance, insurance holder gets guarantee benefits from their policy as well as insurance company, minimizing the risk.
Reinsurance is mainly divided into two categories they are
1. Finite reinsurance
Finite reinsurance is reinsurance policy that covers a finite proportion of loss of the insurance company. That means when huge lose occurs for the insurance company, the insurance company recovers reinsurance only for the stated proportion from it's reinsurance company.
2.Financial reinsurance
Life insurance companies takes this type of reinsurance to keep profits form one year to next.
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