Re-insurance and double insurance contracts are two different concepts and are detailed here under. They both are similar to the contract of insurance, however, they have their own nature and the contract goes on as per the requirement.
One person agrees to make good the loss of another person, in simple words this is the concept of insurance. The one who make good the loss is the insurer and the one whose loss is made good is the insured. The insurer who undertakes the risk to make good the loss has a limit. The insurer sometimes goes beyond his capacity and enters into contract of undertaking to make the loss good. In this scenario, the insurer ensures to safeguard oneself and to spread the risk, insures the same either entirely or partially with other insurer. This spreading of the risk by an insurer is what is called the re-insurance.
In every kind of insurance, the re-insurance can be made. Like the insurance, the contract of re-insurance too is a contract of indemnity. Hence, the original insurer must have an insurable interest. The re-insurer in this contract pays the original insurer only on one condition. The condition, the original insurer pays the insured the assured sum.
In the contract of re-insurance, an important point to be remembered is the re-insurer is not liable to the insured. The simple reason, there is no contract between the re-insurer and the insured. But, the contract actually is in between the original insurer and the insured. The contract of re-insurance, however, ends the very moment the contract of the original insurance comes to an end. In the contract of re-insurance, the original insurer holds the position of insured with the re-insurer. Hence, all the facts must be disclosed to the re-insurer by the original insurer just as in the case of the original insurance contract.
In the contract of double insurance, the insured enters into the contract of insurance with two or more insurers. If the sum insured exceeds the original value of the subject matter that is called over-insurance. It is called over-insurance by double insurance. The over-insurance is lawful provided there is no express condition in the insurance contract. There are some rules with respect to the concept of double insure, they are here under.
Actual loss recovery: The insured can enter into contract of insurance with any number of insurers. When the loss occurs, the insured can claim only the loss amount. The insured cannot claim the sum more than the occurred loss.
Excess recovery and the trust: The insured in any case collects or recovers excess sum from the insurers, that is more amount collected than the actual loss, the excess sum shall be held in trust and the insured is the trustee.
Insurers’ liability: The insured can enter into contract of insurance with many insurers. When the loss occurs, the insurers are liable to the insured and the assured sum must be paid by all the insurers proportionately. If any insurer pays more than the assured sum payable, that insurer has every right to collect the same from the co-insurers who actually paid less assured sum.
Double Insurance in Life Insurance
The insured can enter into contract of insurance with any number of insurers for any amount in case of life insurance and there is no limit.