Simple English definitions for legal terms
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A facultative certificate is a type of insurance contract that covers a specific risk under a single insurance policy. It is negotiated separately from the main policy and allows the reinsurer to assess and possibly reject the risk if there is not enough information available. Think of it like a backup plan for insurance companies.
Definition: A facultative certificate is a type of insurance contract that is negotiated separately to cover risks under a single insurance policy. Facultative reinsurance allows the reinsurer to assess and possibly reject a particular risk, especially if there is inadequate underwriting information.
For example, let's say an insurance company has a policy that covers damages caused by natural disasters. However, the policyholder has a property in an area that is prone to earthquakes, which is not covered under the policy. The insurance company can negotiate a facultative certificate with a reinsurer to cover the risk of earthquake damage for that specific property.
Another example is when a policyholder has a high-value asset that exceeds the coverage limit of their insurance policy. The insurance company can negotiate a facultative certificate with a reinsurer to cover the excess amount.
These examples illustrate how a facultative certificate can be used to provide additional coverage for specific risks that are not covered under a standard insurance policy.