Difference Between Double Insurance and Reinsurance (with Comparison Chart)

The term insurance can be described as an arrangement through which the risk of loss can be shifted from one party (insured) to another (insurer), by paying a specified sum, at definite intervals, i.e. premium. Double insurance is a form of insurance, wherein the individual/company insures a particular property with more than one insurer or with multiple policies from the same insurer.

Double insurance is not exactly same as reinsurance, as it is a transfer of risk on a policy by the insurance company, by insuring the same with another insurer. So, there exist a fine line of differences between double insurance and reinsurance, which are explained in this article.

Comparison Chart

Basis for Comparison	Double Insurance	Reinsurance
Meaning	Double insurance refers to a situation in which the same risk and subject matter, is insured more than once.	Reinsurance implies an arrangement, wherein the insurer transfer a part of risk, by insuring it with another insurance company.
Subject	Property	Original insurer's risk
Compensation	It can be claimed with all insurers.	It can be claimed from the original insurer, who will claim the same from reinsurer.
Loss	Loss will be shared by all the insurers in proportion of the sum insured.	The reinsurer will only be liable for the proportion of reinsurance.
Aim	To assure the benefit of insurance	To reduce the risk of the insurer
Interest of insured	Insurable interest	No interest
Consent of insured	Necessary	Not necessary

Definition of Double Insurance

Double insurance is described as an insurance arrangement in which a particular subject or risk is insured with multiple insurance policies of the same insurer, or with multiple insurers, for the same period. It is made to attain security and satisfaction, which the insurers will make good the loss occurred to the insured.

In the event of loss, the insured can claim compensation from all the insurers under the concerned policies. However, the total amount of compensation cannot exceed the actual loss incurred to him, and so the insurers will contribute, in the proportion of the sum insured.

Definition of Reinsurance

Reinsurance is a product offered by insurance companies to other insurance companies to cover large losses. When an insurance company is not capable of bearing the entire loss arising out of the insurance provided to the insured, then it can go for reinsurance, in which a part of the risk is reinsured, with another insurer.

Usually, the insurance company chooses reinsurance, when the insurance amount is high, and a single insurance company cannot bear it easily.

The original insurer cedes (gives) a proportion of its business to another insurer, in essence, the risk is signed and accepted by that insurance company. In finer terms, reinsurance is a contract between the ceding company (original insurer that shifts a part of the risk) and the reinsurer, for sharing the risk of the insurance policy, in exchange for a share of the insurance premium.

In the event of loss, the amount of claim will be borne in the proportion, they’ve agreed to share the risk of loss.

Key Differences Between Double Insurance and Reinsurance

The difference between double insurance and reinsurance are discussed in the following points in detail:

Double insurance is understood as insurance wherein the property or asset, is insured with many insurers or under multiple insurance policies with the same insurer. Conversely, reinsurance can be defined as the arrangement that helps insurance company to transfer the risk on the insurance policy to another insurer.
In double insurance, the subject matter of the insurance arrangement is the property, for which the policy is taken from various insurers. On the other hand, in reinsurance, the reinsurance is taken for the original insurer’s risk.
When it comes to compensation, the insured can claim all the insurers, in case of double insurance. As against, in reinsurance, the insured can claim compensation from the original insurer, who in turn claim compensation from the reinsurer.
In double insurance, the actual amount of loss incurred will be shared by all the insurers, in the proportion of the sum insured. Unlike, in reinsurance, the reinsurer will be liable for part of risk reinsured by the ceding company.
While double insurance ensures the benefits of insurance, reinsurance is concerned with reducing the insurer’s risk liability.
In double insurance, the insured has an insurable interest in the insurance contract. On the contrary, in reinsurance, the original insured has no interest in reinsurance.
Double insurance is possible only when the insured gives his consent for it. In contrast, in reinsurance the consent of the insured in not required.

Conclusion

Insurance is a contract between the insured and insurer, wherein the latter takes the responsibility to make good the loss occurred to the former, in exchange for the premium. Double insurance and reinsurance sound same, but they are different in the sense that double insurance is taken by the insured himself, whereas reinsurance is an agreement between two insurers, to cover a part of the risk, so it is taken by the insurer.