What is reinsurance?

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Updated: 3/27/2003 4:09 pm
Reinsurance (ree-in-SHUR-ence) is a method used by an insurance company in order to reduce its liability for a policyholder. This method consists of transferring part of the policyholder's coverage to another insurance company. Reinsurance allows an underwriter to assume more liability. It also helps smaller insurers secure the assistance and advice of another insurer in underwriting group insurance and in setting rates. Reinsurance is executed between two insurers; a group policyholder is not involved in the arrangement. In the event the secondary insurance company fails to pay its portion of a claim, the original insurer is obligated to pay the benefits under the policy. For more information on reinsurance, contact an insurance company or agent.

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