Difference Between Insurance and Reinsurance Explained

What Is Insurance?

What Is Reinsurance?

Difference Between Insurance and Reinsurance

Except for the cost of insurance or reinsurance, there are other significant differences which have been listed below:

Parameter

Insurance

Reinsurance

Product Concept

It is a legal agreement where the insurer agrees to provide coverage for a fixed period against loss of life or financial loss. The beneficiary can be an individual or institution that is paying the premiums either monthly, quarterly, half-yearly or annually.

Reinsurance is a form of insurance that acts as a protective shield for prominent insurance companies. Whether or not to avail of reinsurance is the call of an insurer. By signing reinsurance contracts, the insurers can share risks.

Premium

An insurance agency charges premiums to guarantee desired coverage to individuals, family members and even business partners against losing valuable things or life.

Premiums are furnished by partner insurance companies. Each insurer’s contribution must be in accordance with the predetermined ratio decided by both the reinsurer and the ceding company.

Coverage

Coverage can be availed against financial loss or loss of life.

A reinsurer offers coverage to insurance companies against a list of potential risks.

It brings us to the end of our discussion regarding the difference between insurance and reinsurance. Their essential diversification can be noted while analysing their end recipients. Individuals shall buy insurance to protect themselves, their family members, or their valuable belongings. Reinsurance companies will be the companions of companies prone to huge risks of financial losses.

Frequently Asked Questions

How are insurance and reinsurance policies similar? up-arrow

The insurance and reinsurance schemes are meant to recover the financial setback arising from the loss or damage of the insured item. In both cases, the contractually bound guarantor is liable to pay for the unforeseen expenses. It happens as the policy seeker pays them premiums to avail of the facilities. 

Moreover, deductibles exist for both, implying that the policy-issuing party needs to pay up to a predefined sum before applying for indemnification.

Why do insurers sign reinsurance treaties? up-arrow

Insurance companies enter into reinsurance treaties with other insurers to manage risks and build a sufficient cushion against potential threats. In simple words, reinsurance helps insurers to achieve a favourable risk appetite.

What is the future of reinsurance? up-arrow

Alternative capital and new technologies will significantly shape the reinsurance industry’s future as reinsurers are bundling value-added services with reinsurance.

What questions should you ask yourself before buying insurance? up-arrow

You must consider whether you need the insurance scheme or not; if yes, figure out which insurer’s proposition will be profitable in the long term. Finally, understand the various insurance types to determine whether the terms will help your cause.