Reinsurance Premium
What Does Reinsurance Premium Mean?
A reinsurance premium is the sum of money an insurance company pays to a reinsurance company in exchange for a specified amount of reinsurance coverage over a defined period.
Insurance companies purchase reinsurance to mitigate their risks. In other words, reinsurance acts as a safeguard for insurance companies in the event that an excessive number of claims are filed simultaneously.
Insuranceopedia Explains Reinsurance Premium
Insurance companies without sufficient reinsurance risk going bankrupt if they are faced with too many claims at once. Reinsurance safeguards insurers by providing financial protection in case policyholders file so many claims that the payouts exceed what the insurer can afford.
To obtain reinsurance coverage, an insurance company must pay a reinsurance premium to the reinsurer. The cost of the reinsurance premium is determined by the amount of coverage desired. Generally, the more coverage required, the higher the premium.
