What are the essential ingredients for a contract of insurance to qualify as bona fide insurance?
Generally accepted criteria for insurance include: (a) Bona fide insurance must involve a contract between an insured and an insurer providing indemnification or reimbursement by the insurer to the insured for loss from an insurable risk. (b) There must be a transfer or shifting of risk. In a conventional insurance arrangement, this criterion is easily met because the insurer is unrelated to the insured. In a captive insurance arrangement, this criterion must be shown by means of formal contractual transfers of risk. These companies can be related, and usually are best structured as brother-sister subsidiaries within the same group of companies. (c) There must be sufficient distribution of risk. Sufficient risk distribution may be accomplished by means of reinsuring (assuming) risks underwritten by unrelated insurance companies or by directly writing sufficient coverage for unrelated persons. In any case, the specifics of each situation must be evaluated, and differing risk distributio
Accepted criteria for insurance include: (a) Bona fide insurance must involve a contract between an insured and an insurer providing indemnification or reimbursement by the insurer to the insured for loss from an insurable risk. (b) There must be a transfer or shifting of risk. In a conventional insurance arrangement, this criterion is easily met because the insurer is unrelated to the insured. In a captive insurance arrangement, this criterion is shown by means of formal contractual transfers of risk. These companies can be related, and usually are best structured as brother-sister subsidiaries within the same group of companies. (c) There must be sufficient distribution of risk. Sufficient risk distribution may be accomplished by means of reinsuring (assuming) risks underwritten by unrelated insurance companies or by directly writing sufficient coverage for unrelated persons. In any case, the specifics of each situation must be evaluated, and differing risk distribution structures sh
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