Life Reinsurance
What Does Life Reinsurance Mean?
Life reinsurance is an insurance practice in which one insurance company purchases an insurance contract to protect itself against significant losses related to a large group of its current life insurance policies.
This is typically done when a substantial portion of the company’s business is at risk due to the possibility of a similar loss event. The reinsurance company accepts this risk and agrees to reimburse the primary insurer for the portion of any claim originally covered by the reinsurance.
The insurance company purchasing the reinsurance is referred to as the “primary insurer” or “ceding insurance company,” while the company providing the reinsurance is known as the “reinsurer.”
In some cases, a reinsurer may also purchase its own reinsurance policy to cover some portion of the risk it has assumed from the ceding insurance company.
Insuranceopedia Explains Life Reinsurance
Life insurance is a risky and unpredictable business, with insurance companies exposed to various risks, including an overconcentration of policies of one type.
Like most insurance policies, reinsurance coverage helps protect insurers from devastating financial losses caused by unknown diseases or natural disasters. When multiple insurance companies purchase policies from the same reinsurer, they share the risk and limit their total losses in the event of a specific disaster or catastrophe.
Insurers typically purchase reinsurance for the following reasons:
- To limit liability on specific risks.
- To stabilize their losses.
- To protect against catastrophes.
- To increase their capacity to take on new clients.
Reinsurance helps keep premiums low for clients and enables insurance companies to remain viable during widespread losses in their area.
