What Does Coinsurance Plan of Reinsurance Mean?
Coinsurance plan of reinsurance refers to a situation in the insurance industry where an insurance company transfers a financial responsibility to a reinsurer regarding a life insurance policy. That responsibility is a portion of the death benefit. Once a claim is made, the reinsurer gives the fixed amount to the insurance company. The company then gives that amount to the beneficiary.
Insuranceopedia Explains Coinsurance Plan of Reinsurance
Reinsurance is the way that insurance companies can also insure themselves. The possibility of a huge number of policyholders making their claims is not at all surprising and can threaten an insurer of insolvency. To avoid this, insurance companies transfer (or cede) risks to reinsurers.
The most common insurance is life insurance. One of its key features is of course the death benefit. A death benefit by itself is often a large amount because it is calculated to sustain the lifestyle and provide income to the policyholder's beneficiary. Now, as stated mentioned earlier, the scenario of a large number of claims for death benefits is possible. After all, death is inevitable and also unpredictable. That is why a portion of the death benefit of life insurance policies is transferred to reinsurers just to protect the insurance company when this happens.