Meaning of Double Insurance-

When the same subject-matter is insured with two or more insurers and the total sum insured exceeds the actual value of the subject-matter, it is known as double insurance and it amounts to over-insurance.

Example of Double Insurance-

If A insures his factory worth Rs.1 lakh with three insurers as: with X for Rs. 40,000, with Y for Rs. 35,000 and with Z for Rs. 50,000, there is double insurance because the aggregate of all the policies exceeds the total value of A’s factory. If A insures with X for Rs. 40,000, with Y for Rs. 30,000 and with Z for Rs. 30,000, there is no double insurance.

Characteristics of double insurance

The characteristics of double insurance are as follows

(1) The same subject matter is insured by more than one insurance company.

(2) All policies are related to the same insured.

(3) Risk on all policies is of same kind.

4) Risk on all policies is applicable during same period.

(5) Insured has same interest in the subject matter of insured. Thus, the actual utility of double insurance is only in life insurance.

Meaning of Reinsurance-

Reinsurance is an arrangement whereby an original insurer who has sured a risk insures a part of that risk again with another insurer, that is to say, reinsures a part of the risk in order to diminish his own liability.

Definition of Reinsurance :

According to RIEGEL & MILLER-“Reinsurance is the transfer, by an insurance company, a portion of its risk to another company.”

Characteristics of Reinsurance-

(1) It is an insurance between two insurers.

(2) The basic principles of insurance are applied on reinsurance contract. (6) Main insurer can not be reinsured for more than insured amount

(3) It is a contract of indemnity.

(4) Insurer’s right is not affected from reinsurance.

(5) In it, an insurer transfers risks more than his capacity to another insurer.

(6) The main insurer cannot be reinsured for more amount than the reinsured.

(7) Re-insurer accepts the liability of main insurer in reinsurance.

(8) Reinsurer is bound only for legal liabilities.

(9) Reinsurance is applicable on all types of insurances.

Advantages of reinsurance

(1) The main insurer can bear the risk up to the limit. Without reinsurance, a person who wanted large amounts of insurance would have to buy multiple policies from multiple insurance companies. This reinsurance contract allows the purchase of only one policy from one insurance company.

(2) Reinsurance makes it possible to accept each risk for the very amount desired by the proposer and to transfer the excess above the ‘retention limit’ to another insurer.

(3) The reinsurance gives the benefit of the greater stability resulting from a widespread of business. By accepting many risks and sealing down, by reinsurance, all those that are larger than the normal carrying capacity of the insurer justifies, certainty in business is substituted for uncertainty through the better application of the law of average.

(4) The reinsurance makes stability in underwriting and consistency in underwriting results over a period.

(5) It provides a safeguard against serious effects of bonfire.

(6) The reinsurance has the effect of stabilizing income and losses over a period of years.

Difference between Double insurance & Re- Insurance.

Double insurance	Re Insurance
An insured purchases many policies. In double insurance an insured takes more than one policy.	Here, The insurer in turn, takes an insurance of his business from another insurer. But, in Reinsurance the main insurer takes only one policy from the reinsurer
In double insurance, there is a legal relation of insured to every insurer.	In reinsurance main insurer is related to the reinsurer. Insured has no relation with the reinsurer.
In double insurance, all the insurers contribute rateably to the indemnity of the insured as per policy.	In reinsurance the insurer has to pay to the insured the amount in relation to the premium paid.
In double insurance an insured can demand his indemnity from every insurer (but he can not demand indemnity more than his actual loss).	In reinsurance, insured gets indemnity from insurer, and not from reinsurer.
It is available in case of Life- Insurance but not in indemnity	Reinsurance is available in all cases.