Definition of 'Reinsurance' The practice of insurers transferring portions of risk portfolios to other parties by some form of agreement in order

to reduce the likelihood of having to pay a large obligation resulting from an insurance claim. The intent of reinsurance is for an insurance company to reduce the risks associated with underwritten policies by spreading risks across alternative institutions. Also known as "insurance for insurers" or "stop-loss insurance". Investopedia explains 'Reinsurance' Overall, the reinsurance company receives pieces of a larger potential obligation in exchange for some of the money the original insurer received to accept the obligation. The party that diversifies its insurance portfolio is known as the ceding party. The party that accepts a portion of the potential obligation in exchange for a share of the insurance premium is known as the reinsurer. Related Definitions Clash Reinsurance A type of reinsurance that provides additional coverage to the insurance company in the event that one casualty loss event results in two or more claims from insured policy holders. ... Read More Reinsurance Sidecar

A limited purpose company created to work in tandem with insurance companies. Reinsurance sidecars will purchase a portion or all of an insurance policy from an insurance company to ... Read More Cedent A party to an insurance contract who passes financial obligation for certain potential losses to the insurer. In return for bearing a particular risk of loss, the cedent pays an ... Read More Read more: http://www.investopedia.com/terms/r/reinsurance .asp#ixzz1jbbcYuRZ

Reinsurance
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Reinsurance is insurance that is purchased by an insurance company (insurer also sometimes called a "cedant" or "cedent") from another insurance company (reinsurer) as a means of risk management. The reinsurer and

the insurer enter into a reinsurance agreement which details the conditions upon which the reinsurer would pay the insurer's losses (in terms of excess of loss orproportional to loss). The reinsurer is paid a reinsurance premium by the insurer, and the insurer issues insurance policies to its own policyholders. The main reason for insurers to buy reinsurance is to transfer risk from the insurer to the reinsurer, but reinsurance has various other functions as explained below. For example, assume an insurer sells one thousand policies, each with a $1 million policy limit. Theoretically, the insurer could lose $1 million on each policy totaling up to $1 billion. It may be better to pass some risk to a reinsurance company (reinsurer) as this will reduce the insurer's exposure to risk. There are two basic methods of reinsurance:
1. Facultative Reinsurance In facultative reinsurance, the ceding company cedes

and the reinsurer assumes all or part of the risk assumed by a particular specified insurance policy. Facultative reinsurance is negotiated separately for each insurance contract that is reinsured. Facultative reinsurance normally is purchased by ceding companies for individual risks not covered by their reinsurance treaties, for amounts in excess of the monetary limits of their reinsurance treaties and for unusual risks. Underwriting expenses and, in particular, personnel costs, are higher relative to premiums written on facultative business because each risk is individually underwritten and administered. The ability to separately evaluate each risk reinsured, however, increases the probability that the underwriter can price the contract to more accurately reflect the risks involved.
2. Treaty Reinsurance is a method of reinsurance in which the insurer and

the reinsurer formulate and execute a reinsurance contract. The reinsurer then covers all the insurance policies coming within the scope of that contract. The reinsurance contract may oblige the reinsurer to accept reinsurance of all contracts within the scope (known as "obligatory" reinsurance), or it may require

the insurer to give the reinsurer the option to reinsure each such contract (known as "facultative-obligatory" or "fac oblig" reinsurance). There are two basic methods of treaty reinsurance: Quota Share Treaty Reinsurance, and Excess of Loss Treaty Reinsurance.
In the past 30 years there has been a major shift from Quota Share to Excess of Loss in the property and casualty fields.
Contents
[hide]

1 Functions

1.1 Risk transfer

1.2 Income smoothing

1.3 Surplus relief

1.4 Arbitrage

1.5 Reinsurer's expertise

1.6 Creating a manageable and profitable portfolio of insured risks

1.7 Managing cost of capital for an insurance company

2 Types

3 Contracts

2.1 Proportional

2.2 Non-proportional

2.3 Risk-attaching basis

2.4 Loss-occurring basis

2.5 Claims-made basis

4 Fronting

5 Markets

6 Reinsurers

7 Retrocession


[edit]

8 See also

9 References

10 External links

Functions

Almost all insurance companies have a reinsurance program. The ultimate goal of that program is to reduce their exposure to loss by passing the exposure to loss to a reinsurer or a group of reinsurers. Therefore, they are 'transferring some of the risk to the reinsurer or a group of reinsurers'. In the USA, insurance, which is regulated at the state level, permits an insurer only to issue policies with a maximum limit of 10% of their surplus (net worth), unless those policies are reinsured. [edit]Risk transfer With reinsurance, the insurer can issue policies with higher limits than it would otherwise be allowed, therefore being permitted to take on more risk because some of that risk is now transferred to the reinsurer. Reinsurance has gone from a relatively unsophisticated business to a highly sophisticated endeavor. The reason for this is the number of reinsurers that have suffered significant losses and become financially impaired. From 2000 onward, reinsurers have become much more reliant on actuarial models and tight review of the companies they are willing to reinsure. They review their financials closely, examine the experience of the proposed business to be reinsured, review the underwriters that will write that business, review their rates, and much more. Almost all reinsurers now visit the insurance company and review underwriting and claim files and more. [edit]Income smoothing Reinsurance can help to make an insurance companys results more predictable by absorbing larger losses and reducing the amount of capital needed to provide coverage. The risk factor is diversified with the reinsurer bearing some of the loss incurred. [edit]Surplus relief An insurance company's writings are limited by its balance sheet (this test is known as the solvency margin). When that limit is reached, an insurer can do one of the following: stop writing new business, increase its capital, or buy "surplus relief"

[edit]Arbitrage The insurance company may be motivated by arbitrage in purchasing reinsurance coverage at a lower rate than they charge the insured for the underlying risk, which can be in the area of risk associated with any form of the asset that is being issued or loaned against. It can be a car, a mortgage, an insurance (personal, fire, business, etc.) and the like. In general, the reinsurer may be able to cover the risk at a lower premium than the insurer because:

The reinsurer may have some intrinsic cost advantage due to economies of scale or some other efficiency

Reinsurers may operate under weaker regulation than their clients. This enables them to use less capital to cover any risk, and to make less prudent assumptions when valuing the risk.

Even if the regulatory standards are the same, the reinsurer may be able to hold smaller actuarial reserves than the cedant if it thinks the premiums charged by the cedant are excessively prudent. The reinsurer may have a more diverse portfolio of assets and especially liabilities than the cedant. This may create opportunities for hedging that the cedant could not exploit alone. Depending on the regulations imposed on the reinsurer, this may mean they can hold fewer assets to cover the risk. The reinsurer may have a greater risk appetite than the insurer.

[edit]Reinsurer's expertise The insurance company may want to avail itself of the expertise of a reinsurer, or the reinsurer's ability to set an appropriate premium, in regard to a specific (specialised) risk. [edit]Creating a manageable and profitable portfolio of insured risks By choosing a particular type of reinsurance method, the insurance company may be able to create a more balanced and homogenous portfolio of insured risks. This would lend greater predictability to the portfolio results on net basis (after reinsurance) and would be reflected in income smoothing. While income smoothing is one of the objectives of reinsurance arrangements, the mechanism is by way of balancing the portfolio.

[edit]Managing cost of capital for an insurance company By getting a suitable reinsurance, the insurance company may be able to substitute "capital needed" as per the requirements of the regulator for premium written. It could happen that the writing of insurance business requires x amount of capital with y% of cost of capital and reinsurance cost is less than x*y%. Thus more unpredictable or less frequent the likelihood of an insured loss, the more profitable it can be for an insurance company to seek reinsurance. [edit]Types [edit]Proportional Proportional reinsurance (the types of which are quota share and surplus reinsurance) involves one or more reinsurers taking a stated percent share of each policy that an insurer produces ("writes"). This means that the reinsurer will receive that stated percentage of each dollar of premiums and will pay that percentage of each dollar of losses. In addition, the reinsurer will allow a "cedingcommission" to the insurer to cover the initial costs incurred by the insurer (marketing, underwriting, claims etc.). The insurer may seek such coverage for several reasons. First, the insurer may not have sufficient capital to prudently retain all of the exposure that it is capable of producing. For example, it may only be able to offer $1 million in coverage, but by purchasing proportional reinsurance it might double or triple that limit. Premiums and losses are then shared on a pro rata basis. For example, an insurance company might purchase a 50% quota share treaty; in this case they would share half of all premium and losses with the reinsurer. In a 75% quota share, they would share (cede) 3/4 of all premiums and losses. The other form of proportional reinsurance is surplus share or surplus of line treaty. In this case, a retained line is defined as the ceding company's retention - say $100,000. In a 9 line surplus treaty the reinsurer would then accept up to $900,000 (9 lines). So if the insurance company issues a policy for $100,000, they would keep all of the premiums and losses from that policy. If they issue a $200,000 policy, they would give (cede) half of the premiums and losses to the reinsurer (1 line each). The maximum underwriting capacity of the cedant would be $ 1,000,000 in this example.

[edit]Non-proportional Non-proportional reinsurance only responds if the loss suffered by the insurer exceeds a certain amount, which is called the "retention" or "priority." An example of this form of reinsurance is where the insurer is prepared to accept a loss up to $1 million and purchases a layer of reinsurance of $4 million in excess of this $1 million. If a loss of $3 million were then to occur, the insurer would "retain" $1 million of the loss and would recover $2 million from its reinsurer. In this example, the reinsured also retains any loss exceeding $5 million unless it has purchased a further excess layer of reinsurance. The main forms of non-proportional reinsurance are excess of loss and stop loss. Excess of loss reinsurance can have three forms - "Per Risk XL" (Working XL), "Per Occurrence or Per Event XL" (Catastrophe or Cat XL), and "Aggregate XL". In per risk, the cedants insurance policy limits are greater than the reinsurance retention. For example, an insurance company might insure commercial property risks with policy limits up to $10 million, and then buy per risk reinsurance of $5 million in excess of $5 million. In this case a loss of $6 million on that policy will result in the recovery of $1 million from the reinsurer. In catastrophe excess of loss, the cedants per risk retention is usually less than the cat reinsurance retention (this is not important as these contracts usually contain a 2 risk warranty i.e. they are designed to protect the reinsured against catastrophic events that involve more than 1 policy). For example, an insurance company issues homeowner's policies with limits of up to $500,000 and then buys catastrophe reinsurance of $22,000,000 in excess of $3,000,000. In that case, the insurance company would only recover from reinsurers in the event of multiple policy losses in one event (i.e., hurricane, earthquake, flood, etc.). Aggregate XL affords a frequency protection to the reinsured. For instance if the company retains $1 million net any one vessel in the cover of $10 million in the aggregate, the excess of $5 million in the aggregate would equate to 5 total losses (or more partial losses). Aggregate covers can also be linked to the cedant's gross premium income during a 12 month period, with limit and deductibleexpressed as percentages and amounts. Such covers are then known as "Stop Loss" or annual aggregate XL.

[edit]Risk-attaching

basis

A basis under which reinsurance is provided for claims arising from policies commencing during the period to which the reinsurance relates. The insurer knows there is coverage for the whole policy period when written. All claims from cedant underlying policies incepting during the period of the reinsurance contract are covered even if they occur after the expiration date of the reinsurance contract. Any claims from cedant underlying policies incepting outside the period of the reinsurance contract are not covered even if they occur during the period of the reinsurance contract.
[edit]Loss-occurring

basis

A Reinsurance treaty from under which all claims occurring during the period of the contract, irrespective of when the underlying policies incepted, are covered. Any claims occurring after the contract expiration date are not covered. As opposed to claims-made policy. Insurance coverage is provided for losses occurring in the defined period. This is the usual basis of cover for most policies.
[edit]Claims-made

basis

A policy which covers all claims reported to an insurer within the policy period irrespective of when they occurred.
[edit]Contracts

Most of the above examples concern reinsurance contracts that cover more than one policy (treaty). Reinsurance can also be purchased on a per policy basis, in which case it is known as facultative reinsurance. Facultative reinsurance can be written on either a quota share or excess of loss basis. Facultative reinsurance is commonly used for large or unusual risks that do not fit within standard reinsurance treaties due to their exclusions. The term of a facultative agreement coincides with the term of the policy. Facultative reinsurance is usually purchased by the insurance underwriter who underwrote the original insurance policy, whereas treaty reinsurance is typically purchased by a senior executive at the insurance company. Reinsurance treaties can either be written on a continuous or term basis. A continuous contract continues indefinitely, but generally has a notice period whereby either party can give its intent to cancel or amend the treaty within 90 days. A term agreement has a built-in expiration date. It is common for insurers and reinsurers to have long term relationships that span many years.
[edit]Fronting

Sometimes insurance companies wish to offer insurance in jurisdictions where they are not licensed: for example, an insurer may wish to offer an insurance programme to a multi-national company, to cover property and liability risks in every country in the world. In such situations, the insurance company may find a local insurance company which is authorised in the relevant country, arrange for the local insurer to issue an insurance policy covering the risks in that country, and enter into a reinsurance contract with the local insurer to transfer the risks. In the event of a loss, the policyholder would claim against the local insurer under the local insurance policy, the local insurer would pay the claim and would claim reimbursement under the reinsurance contract. Such an arrangement is called "fronting". Fronting is also sometimes used where an insurance buyer requires its insurers to have a certain financial strength rating and the prospective insurer does not satisfy that requirement: the

prospective insurer may be able to persuade another insurer, with the requisite credit rating, to provide the coverage to the insurance buyer, and to take out reinsurance in respect of the risk. An insurer which acts as a "fronting insurer" (or a "front") usually receives a fronting fee for this service. The fronting insurer is taking a risk in such transactions, because it has an obligation to pay its insurance claims even if the reinsurer becomes insolvent and fails to reimburse the claims.
[edit]Markets

Most reinsurance placements are not placed with a single reinsurer but are shared between a number of reinsurers. For example a $30,000,000 excess of $20,000,000 layer may be shared by 30 or more reinsurers. The reinsurer who sets the terms (premium and contract conditions) for the reinsurance contract is called the lead reinsurer; the other companies subscribing to the contract are called following reinsurers. About half of all reinsurance is handled by reinsurance brokers who then place business with reinsurance companies. The other half is with direct writing reinsurers who have their own production staff and thus reinsure insurance companies directly. In Europe reinsurers write both direct and brokered accounts. Using game-theoretic modeling, Professors Michael R. Powers (Temple University) and Martin Shubik (Yale University) have argued that the number of active reinsurers in a given national market should be approximately equal to the square-root of the number of primary insurers active in the same market.[1] Econometric analysis has provided empirical support for the Powers-Shubik rule.[2] Insurers (that is to say, reinsureds) tend to choose their reinsurers with great care as they are exchanging insurance risk for credit risk. Risk managers monitor reinsurers' financial ratings (S&P, A.M. Best, etc.) and aggregated exposures regularly.
[edit]Reinsurers

1. 2. 3. 4. 5. 6. 7. 8. 9.

Munich Re Germany ($31.4 billion Gross Written Premiums) Swiss Re Switzerland ($30.3 billion) Berkshire Hathaway / General Re USA (n.a.) Hannover Re Germany ($12 billion) SCOR France ($6.9 billion) Reinsurance Group of America USA ($5.7 billion) Transamerica Re USA ($4.2 billion) Everest Re Bermuda ($4.0 billion) Partner Re Bermuda ($3.8 billion)

10. XL Re Bermuda ($3.4 billion)

(Based on company figures; in US$) In addition, syndicates at Lloyd's of London wrote 6.3 billion of reinsurance premium in 2008. Major reinsurance brokers include:

Guy Carpenter Aon Corporation Willis Re Towers Watson Cooper Gay Swett & Crawford Atlantic Intermediaries

[edit]Retrocession

Reinsurance companies themselves also purchase reinsurance, a practice known as a retrocession. They purchase this reinsurance from other reinsurance companies. A reinsurance company that sells reinsurance is a "retrocessionaire". A reinsurance company that buys reinsurance is a "retrocedent". It is not unusual for a reinsurer to buy reinsurance protection from other reinsurers. For example, a reinsurer that provides proportional, or pro rata, reinsurance capacity to insurance companies may wish to protect its own exposure to catastrophes by buying excess of loss protection. Another situation would be that a reinsurer which provides excess of loss reinsurance protection may wish to protect itself against an accumulation of losses in different branches of business which may all become affected by the same catastrophe. This may happen when a windstorm causes damage to property, automobiles, boats, aircraft and loss of life, for example. This process can sometimes continue until the original reinsurance company unknowingly gets some of its own business (and therefore its own liabilities) back. This is known as a "spiral" and was common in some specialty lines of business such as marine and aviation. Sophisticated reinsurance companies are aware of this danger and through careful underwriting attempt to avoid it. In the 1980s, the London market was badly affected by the creation of reinsurance spirals. This resulted in the same loss going around the market thereby artificially inflating market loss figures of big claims (such as the Piper Alpha oil rig). The LMX spiral (as it was called) has been stopped by excluding retrocessional business from reinsurance covers protecting direct insurance accounts. It is important to note that the insurance company is obliged to indemnify its policyholder for the loss under the insurance policy whether or not the reinsurer reimburses the insurer. Many insurance companies have experienced difficulties by purchasing reinsurance from companies that did not or could not pay their share of the loss. (These unpaid claims are known as uncollectibles.) This is particularly important on long-tail lines of business where the claims may arise many years after the premium is paid.
[edit]

ACE Tempest Reinsurance Ltd. Argo Group Axis Capital Berkshire Hathaway Reinsurance Group Endurance Specialty Holdings Ltd. Everest Re Group Glacier Group Hannover Re Group Korean Re Lloyds of London Munich Re Group Odyssey Re Holdings Corp. Paris Re Partner Re Ltd. Platinum Underwriters Holdings Ltd. QBE Insurance Group Ltd.

RenaissanceRe Holdings Ltd. SCOR Swiss Re Group Ace Group of Companies Alamance Reinsurance Marketplace American Re Annuity & Life Re Aon Applied Insurance Research Arab Reinsurance Company ARDAF Insurance Reinsurance Artis Group AXA Reassurance Axis Management Group BMA Reinsurance BMS Group Brokers & Reinsurance Markets Association CATEX Centre Group Centre Solutions CL Frates CNA Re CNA Re Smartfac Collard & Partners Converium Copenhagen Reinsurance Company Credit Guarantee Devonshire Group Dorinco Reinsurance Company Enterprise Reinsurance European Reinsurance Consultants Everest Re Group Evergreen Re EWI Re Intermediaries & Consultants Fiduciary Intermediary

CATASTROPHE REINSURANCE: Definition: Reinsurance (insurance for insurers) for catastrophic losses. The insurance industry is able to absorb the multibillion dollar losses caused by natural and man-made disasters such as hurricanes, earthquakes and terrorist attacks because losses are spread among thousands of companies including catastrophe reinsurers who operate on a global basis. Insurers' ability and willingness to sell insurance fluctuates with the availability and cost of catastrophe reinsurance.

After major disasters, such as Hurricane Andrew and the World Trade Center terrorist attack, the availability of catastrophe reinsurance becomes extremely limited. Claims deplete reinsurers' capital and, as a result, companies are more selective in the type and amount of risks they assume. In addition, with available supply limited, prices for reinsurance rise. This contributes to an overall increase in prices for property insurance. Information provided by Insurance Information Institute

Types of Reinsurance
Posted By - IndianMoney.com Research Team- On-06/04/09

Following are the important types of Reinsurance 1. Proportional reinsurance 2. Non-proportional 3. Facultative Reinsurance: 1. Proportional reinsurance Proportional reinsurance involves one or more reinsurers taking a stated percent share of each policy that an insurer produces. This means that the reinsurer will accept that stated percentage of each of premiums and will pay that percentage of each loss. The insurer may appear for such coverage for many reasons for example, the insurer may not have sufficient capital to carefully keep all of the

exposure that it is capable of producing. There are two types of proportional reinsurance.

a. Quota Share Reinsurance

The ceding company and the reinsurer take a balanced share of losses and premiums, which is generally expressed as a fixed percentage of loss on each risk. A ceding charge is paid by the reinsurer to the primary insurer to reimburse for the expenses incurred in writing the business.

b. Surplus Share Reinsurance

Surplus share reinsurance is related to quota share reinsurance, apart from the risks are not ceded to the reinsurer; instead, only risks exceeding a minimum dollar amount, or "line", are ceded 2. Non-proportional Under this type of reinsurance, insurer is responds to the loss suffered by the insurer exceeds a certain amount, it is called as, the retention or priority. 3. Facultative Reinsurance: Facultative reinsurance is coverage where the reinsurer evaluates a particular risk on a case-by-case basis. Facultative reinsurance is negotiated separately for each insurance contract that is to be reinsured. The flexibility of facultative reinsurance allows various ceding insurers to reinsure dangerous risks which are not covered by continuing contract, so they can reduce the insurer's responsibility in certain high-risk areas. Facultative reinsurance also allows the prime insurers to get the reinsurer's advice on uncertain risks. This type of reinsurance contract can be in pro-rata form or excess of loss. Advantages of the Facultative Reinsurance:

More Business It Increases the insurer's capability to take on larger amounts of insurance business. Disadvantages of the Facultative Reinsurance:

Flexibility - The capability to arrange a reinsurance contract to fit any particular case. Stability - Stability in the operations of the insurer as losses can be transferred to the reinsurer.

Uncertainty - The ceding insurer cannot plan before as it does not know whether the reinsurer will accept the risk. Delays for the Insurer - The policy will not be issued apart from the reinsurance is obtained, it leads to delay

Unreliability - Dire market circumstances and poor loss outcomes can decline the reinsurance market, making it difficult for the insurer to reach reinsurance. 4. Treaty Reinsurance Treaty reinsurance is a contract between insurers and reinsurers. The ceding company is contractually bound to cede and the reinsurer is bound to assume a particular element or kind of risk insured by the ceding company. Once the negotiations of the contract are over, the reinsurer must automatically allow all business included within the conditions of the reinsurance contract with the ceding company. Advantages of Treaty Reinsurance:

Economical - The insurer does not have to shop for a reinsurer before underwriting the policy so it is economical. Fast - There is no delay or uncertainty involved in Treaty Reinsurance.

Disadvantages of Treaty Reinsurance:

Expensive - Administrative expenditure can be quite high in Treaty Reinsurance. Complex - Treaty Reinsurance is difficult and requires larger record keeping.

Definition of 'Catastrophe Excess Reinsurance'

Insurance for catastrophe insurers. Because of the unpredictable nature of catastrophes, the large amount of damage they cause and the high number of insurance claims that occur as a result, a catastrophe insurance company faces a significant risk of its business going under. To mitigate this risk, catastrophe insurers rely on catastrophe excess reinsurance. The reinsurance company accepts a portion of the potential obligation in exchange for a share of the insurance premium.

Investopedia explains 'Catastrophe Excess Reinsurance'

In the absence of catastrophe excess reinsurance, insurers may restrict new business or refuse to renew existing policies after a catastrophe. Thus, catastrophe excess reins

Related Definitions

Reinsurance
The practice of insurers transferring portions of risk portfolios to other parties by some form of agreement in order to reduce the likelihood of having to pay a large obligation ... Read More

Retrocession
1. The practice of one reinsurance company essentially insuring another reinsurance company by accepting business that the other company had agreed to underwrite.2. The voluntary act of ... Read More

Risk
The chance that an investment's actual return will be different than expected. Risk includes the possibility of losing some or all of the original investment. Different versions of risk ... Read More

Read more: http://www.investopedia.com/terms/c/catastrophe-excess-reinsurance.asp#ixzz1jbdbJYMX

Reinsurance Methods The method of reinsurance is determined one of five different ways: 1. Pro-Rata Basis - A reinsurer receives a percentage of the premium collected by the original insurance company for the business covered under the contract. The reinsurer pays the same percentage of losses incurred on this business. 2. Excess of Loss Basis - The reinsurer agrees to

accept all losses over a certain amount. This is the most common form of reinsurance. 3. Per Risk Excess of Loss - The reinsurer agrees to pay losses over a certain amount on any one risk that is underwritten by the original company. This allows the original company to underwrite larger policies. 4. Catastrophic Excess of Loss - The reinsurer agrees to pay the total loss over a certain amount on all accumulated losses involved in a catastrophe. This protects the original company in the event of a catastrophic loss. 5. Aggregate Excess of Loss/"Stop Loss" The reinsurer agrees to pay all losses over a certain amount for the original company's total losses for the

period of the contract.

Definition of 'Insurance' A contract (policy) in which an individual or entity receives financial protection or reimbursement agai nst losses from an insurance company. The company pools clients' risks to make payments mo re affordable for the insured.
Investopedia explains 'Insurance'
When shopping around for an insurance policy, look for the best priced package that is right for you - prices can vary from one insurance company to the next. And make sure you know what you want. Some individuals, for example, prefer 24-hour claims service or face-to-face contact with an insurance representative. Also consider the claims settlement process, the amount of the deductible and the extent of the replacement coverage. Insurance companies and the policies they offer are not all the same, so think about more than just the price.

Related Definitions

Life Insurance
A protection against the loss of income that would result if the insured passed away. The named beneficiary receives the proceeds and is thereby safeguarded from the financial impact of ... Read More

Reinsurance
The practice of insurers transferring portions of risk portfolios to other parties by some form of agreement in order to reduce the likelihood of having to pay a large obligation ... Read More

Term Life Insurance

A policy with a set duration limit on the coverage period. Once the policy is expired, it is up to the policy owner to decide whether to renew the term life insurance policy or to let ... Read More

Read more: http://www.investopedia.com/terms/i/insurance.asp#ixzz1jbeax2Db

Cost of Insurance Definition

The Dictionary of Insurance Terms and Definitions Each premium you pay for life insurance covers several expenses, such as maintenance charges, premium taxes, and cost of insurance (COI). Cost of insurance is what the insurer charges you to cover its mortality expenses (the money it pays out in death benefits). Loading costs (that is, the costs involved in placing policies) may also be included in COI. Your cost of insurance is based on the value of your policy and the mortality risk of the person(s) you propose to insure. To adjust the price of your policy, you may change the type of insurance, expirationof coverage, or face amount. As for your mortality risk, you don't have as much control to make immediate changes. Mortality risk is based on your age, sex, substance abuse, measurements, and health class. Your best bet for improving your mortality risk is to get the best health class possible. For help finding the carrier that will assign you the cheapest health class, you should enlist the aid of an independent agent (that's a life insurance agent that isn't employed by any single insurer). Use an agent that has experience with a good variety of reputable insurers, so his/her knowledge of their individual underwriting practices can help you identify the one that will judge your medical condition most favorably.