commutation clause


An arrangement that permits a reinsurer to make a onetime payout that fulfills any and all obligations to another party after a given time period. Exercising the commutation clause permits the reinsurance company to discharge all responsibilities under a policy and limit ongoing exposure in situations such as long-term disability where losses are ongoing or recurring.

Use commutation clause in a sentence

You should try to make sure that you ask for a commutation clause that will offer you greater flexibility later.

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The commutation clause was a way to end the business relationship while still ensuring both parties are made completely whole.

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The company had a commutation clause in place for good behavior or exemplary conduct within the first year of being hired into the company.

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