Legal Definitions - facultative certificate

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 underwritinginformation.

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.