DEFINITION of 'Continuous Contract'

A reinsurance contract that does not have a fixed contract end date, and which will continue to be renewed and be in effect until one of the parties in the contract provides notice that it will terminate. Continuous contracts are different from standard reinsurance contracts in that they do not provide coverage for only a fixed period of time.

BREAKING DOWN 'Continuous Contract'

When entering into the reinsurance contract the parties involved may decide that they want to allow the contract to renew indefinitely. The contract language will define the risks that are covered, and will also indicate the procedures that either party can follow in order to provide a notice of termination. The notice could be a written notice provided one month before the contract is set to renew, or may follow whatever notice period both parties agree to. The validity portion of the insurance contract may say, for example, that the contract is considered continuous unless both parties indicate that it is not to be considered so.

While a continuous contract may be renewed for an indefinite period of time, it will only remain in force for a specified contract period at any time. This means that both parties have the ability to end the contract while not breaking the terms of the agreement by ending the contract while it is still active. This type of contract is a fixed period contract, with a provision allowing for periodic renewal.

If the insurance contract is terminated earlier than what the two parties agreed, the insurer will still receive the premium that it is entitled to for the period of time that it has provided coverage. In most cases the amount of premium earned is dependent on the amount of time that the coverage has been provided for, though in some cases the two parties may have agreed to an alternative type of schedule not based on time.

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