Insurance, overinsurance and reinsurance: what is the difference?? (All)
The differences between some types of insurance policies are easy to figure out. For example, auto insurance covers cars and homeowners covers individual homes. However, other terms are not so self-explanatory. You should especially understand the differences between primary and excess insurance, as you will likely encounter them at some point. You may also have heard of the term "reinsurance" heard, which you rather do not know, but still should know to avoid confusion.
Primary
Insurance is considered primary when coverage begins after a written contract is signed and potential liability is triggered by an event. For example, if you purchase fire insurance for your home or business, primary coverage kicks in once the insured property suffers fire damage.
Primary insurance usually obligates the insurance carrier to protect against claims made against the insured, such as protecting a motorist who was struck by another vehicle at an intersection. There may be some provisions regarding the timing and circumstances, such as. B. The speed of reporting the claim, but in general, the insurer's obligations follow a similar pattern in every case.
Each primary policy has a cap on the amount of coverage available and typically sets deductibles for the customer. Primary policies pay out against claims regardless of whether other outstanding policies cover the same risk.
Primary insurance has a slightly different structure, or at least a different use of terms, when referring to health insurance. Primary insurance in medicine typically refers to the first payer of a claim up to a certain coverage limit, above which a secondary payer is required to cover additional amounts. This is especially important in the interaction between Medicare and other forms of health insurance.
Surplus
The excess coverage is due to the many different uses of the term "deductible" in the insurance industry a topic with large confusion. In fact, there were some serious malpractice claims against insurance companies that used the term in a confusing or misleading way.
In its most basic form, an excess policy extends the coverage limit to find existing coverage, also known as underlying liability coverage. The underlying policy does not have to be primary insurance; it can be reinsurance or another excess policy in many circumstances. Umbrella insurance policies are often the underlying policy.
However, overinsurance is not necessarily the same as umbrella insurance.An umbrella liability policy has been written to cover several different primary liability policies. For example, a family might purchase a personal umbrella insurance policy (PUP) from Allstate Corp. (NYSE: ALL ALLAllstate Corp99. 18 + 0. 09% Created with Highstock 4. 2. 6 ) Extending excess coverage to both automobile and homeowners policies. If an excess policy applies only to a single underlying policy, it is not considered an umbrella policy.
The International Risk Management Institute outlines three uses of an umbrella excess insurance policy. When first used, the coverage limit is extended to the underlying insurance policies after they have been depleted by payments on a larger claim. The second use is flexibility, which can be used in situations where the underlying policies are not sufficient. However, updating the entire policy package is too expensive. Finally, an umbrella policy may provide protection against some claims not covered by the underlying policies.
Reinsurance
Unless you own or work for an insurance company, you are unlikely to encounter reinsurance in the marketplace. In fact, reinsurance is insurance for other insurance companies. Any reinsurance agreement requires a coverage insurer or reinsurer to insure against potential losses from insurance debts issued by the insured policyholder or the outgoing insurer.
The basic operational features of reinsurance are similar to those of primary insurance. The reinsurance company pays the premium to the reinsurer and creates a potential claim against undesirable future risks. If it weren't for the added protection of reinsurers, most primary insurers would either leave riskier markets or charge higher premiums for their policies.
A typical example of reinsurance is what is known as a "cat policy", short for disastrous surplus reinsurance policy. This covers a specific loss limit due to catastrophic circumstances, such as z. B. of a hurricane, which would require the primary insurer to pay out significant amounts of claims at the same time. Unless there are other specific cash call provisions, the reinsurer is not obligated to pay until the original insurer has paid claims on its own policies.