Understanding Insurance, Basic Principles, Types of Insurance, Function, Purpose, and Terms in Insurance

Definition of Insurance

Life can never be separated from the name of risk or loss. This risk or loss can appear anytime and anywhere. No one can know when a risk or loss occurs. But we as humans can minimize and overcome the consequences of these risks. So, how do we overcome or minimize these risks? One of them is with insurance. What ? Insurance? Then what is insurance? Well Insurance is one form of risk control carried out by transferring / transferring risk from one party to another party in this case is the insurance company.

Or in another sense Insurance can also be interpreted coverage or agreement between the two parties, where one party is obliged to pay dues / premiums. The other party has the obligation to provide full guarantees to the payer of premiums / premiums if something happens to the first party or his property in accordance with a predetermined agreement.

Basic Principles of Insurance

There are 6 Basic Principles in insurance that must be known, namely:

1. Insurable Interest
Insurable Interest is the right to insure, arising from a financial relationship, between the insured and the insured and legally recognized.

2. Subrogation
Subrogation is a transfer of claim rights from the insured to the guarantor after the claim is paid.

3. Proximate Cause
Proximate Cause is an active, efficient cause that causes a chain of events that results in an effect without an intervention that starts and is active from new and independent sources.

4. Utmost Good Faith
Utmost Good Faith is an act to express accurately and completely, all material facts about something to be insured whether requested or not. The meaning is: the guarantor must honestly explain clearly everything about the extent of the terms / conditions of insurance and the insured must also provide clear and true information on the insured interests

5. Contribution
Contribution is the right of the guarantor to invite other insurers who are equally bear, but not necessarily the same obligation to the insured to participate in giving indemnity.

6. Indemnity
Idemnity is a mechanism where an insurer provides financial compensation in an effort to place the insured in a financial position he has just before the loss occurs.

The function of insurance

1. A place for saving and investing
In certain types, there are insurance facilities that have a cash value if not used or there is no submission of a claim. Such types are called whole life or endowment. Even now there is insurance combined with investments known as unit links. Of these types, insurance can not only reduce the risk to yourself and your assets, but also can be a means to save money and a tool for investing in the future.

2. Presents a sense of security for business people
Every business model has risks in it. For entrepreneurs, business insurance is something that is very important to help overcome and overcome anxiety if there is an unwanted risk in the business. With insurance at the company, entrepreneurs can focus more on management and business development.

3. Divide Risk of Loss
With insurance, the potential losses can be shared with other parties. In other words, premium payments made by customers will later be replaced with insurance claims if there is a risk corresponding to insurance.

4. Increase Business Activities
Imagine if your place of business was suddenly destroyed or the assets in it were completely gone. Of course you have to provide funds that are not small for the replacement so that the business continues to run. With insurance, losses from this can be borne by the insurance company so that the available funds can be used to increase your business activities.

5. Minimize Risk of Loss
Each insurance company always provides recommendations to customers regarding the risks that may occur. That way, then someone can minimize or even prevent the potential risk.

6. Give Certainty
From risks that are uncertain, you can get certainty from insurance. That is, you can already estimate the costs or financial consequences of risks that can arise at any time with a relatively definite value.

Various insurance
There are many kinds of insurance depending on needs, time of use and purpose. Kind of insurance, namely:

1. Home and Property Ownership Insurance, which is insurance that provides guarantees to home or property owners in the event of damage to their property.

2. Education Insurance, which is insurance that provides education guarantees to the insured party. For example if one day there is an economic problem in the family and parents are unable to pay for education, then the cost of education will be funded by insurance.

3. Vehicle Insurance, which is insurance that provides coverage for vehicles in the event of risks such as damage due to accidents, loss, and others.

4. Health Insurance, which is a type of insurance that provides protection for health problems caused by accidents or diseases.

5. Business Insurance, insurance that provides guarantees to companies in the event of risks that cause losses, such as loss, damage, and others.

6. Life Insurance, which is a type of insurance that provides coverage for the death of a customer who has financial value.

The purpose of insurance

Some insurance goals are as follows:

1. To minimize the potential for greater losses if it incurs its own costs when a risk occurs.

2. As a basis for the Bank in providing credit to a person or business entity because the Bank requires protection of funds lent to customers.

3. Guarantee for a party to get protection from any risk of loss that may occur.

4. To get compensation to the customer in accordance with the value of insurance premiums.

5. Especially for certain life insurance (life insurance), insurance can be a savings because some of the premium costs will be returned to the customer.

6. To transfer a number of risks that exist on one party to another party, in this case the other party, namely the insurance company.

7. For efficiency for a company because it reduces costs for supervision, security, and protection which takes a lot of cost and time.

8. To cover the loss of earning power (loss of income) someone or a business entity when it is not working or no longer functioning.

Types of risks that can be covered by insurance

1. Happened Accidentally and Unintentionally
The insurer does not want to be responsible in transferring the risk of losses that may arise as a result of intentional. For example, there is no value of coverage for someone who is hospitalized as a result of attempting suicide.

2. Must Be Included In Pure Risk and Include Special Risk
In other words, these risks arise unexpectedly and can happen to anyone. For example the risk of death and the risk of accidents.

3. Are the same and in large numbers
The number of similar risks is the assessment of the insurance company to determine the estimated magnitude of the losses incurred. Special things, such as stamp collections, will be difficult to insure because the insurer is difficult to determine the amount of coverage, it is because the value depends on individual preference and not on the amount.

4. Can be Measured in Money
This means that the transfer of risk is assessed financially, not emotionally of the insured. For example in life insurance, the insurer can only provide diversion in the form of money that has been in debt, without being able to revive the deceased party.

5. Contain Losses For the Insured (customer)
That the risks you insure must be about yourself. If the risk is in fact only affect other people, the insurance company can not transfer the risk. For example, you cannot insure your friend's car because if the car is lost or damaged, it is not you, but your friend who suffers from loss.

6. Proven
In this case the insurer demands valid proof of the loss you experienced before issuing compensation. For example, when you lose an insured car, you must have a police statement stating the loss until finally you can submit a claim to the insurance.

Insurance company profits

Insurance companies not only provide protection and guarantees related to your assets, but insurance companies also get investment benefits. This is obtained from the premium investment received until they have to pay a claim. This money is called "float". Insurers (insurance companies) get profit or loss from float price fluctuations and also interest rates.

Insurance Terms

1. Insurance Policy
Definition of an insurance policy is a contract or agreement issued by an insurance party to the insured which is the basis for paying compensation to the insured from the loss he experienced. Or in other words instead of the premium paid for insurance services and the insured has the right to get a policy.
This policy contains all the provisions that guarantee any loss borne by the insurance until the insured data is clear.

2. Premiums
In simple terms, premiums are obligations that must be paid by the insured to the insurer as a desired risk transfer service. To get the benefits of risk transfer from the insurance, the obligation to pay this premium must be paid by the insured.

3. Claims
When you get a loss from an event, you can check the risk has been insured and listed in the policy or not. If there is, you can submit a claim as a form of compensation claim for the loss you have experienced. However, in submitting a claim you must include proof, for example if you are hospitalized, there must be a statement from the hospital stating that you are indeed being treated in hospital.

Understand before Using
Understanding the types of risks and benefits of joining an insurance program will make you more careful in living your life and feel comfortable joining an insurance program that suits your needs. Do not be careless and quickly swayed with the advantages and facilities of each insurance product offered, if you do not want to experience losses because you have insurance products that do not meet your needs. Because if you have insurance products that are excessive and do not fit your needs then you will be more complicated to manage your financial plan because many payments for insurance may not have been needed by you. So be wise in choosing insurance products that you want to use, so congratulations on insurance. Thank you for that.