Definition of Life Insurance, Types of Policies, Benefits & Examples
Definition of Insurance, Function and Purpose (Full Discussion) – The word insurance is taken from the word insurance which means coverage. Insurance is an agreement between the customer or the insured and the insurer/insurance company.
Definition of Insurance, Function and Purpose (Full Discussion)
In this case the insurer is willing to bear a number of losses that may occur later after the insured agrees to pay with an amount of money referred to as premium. Premium is the amount of money issued to the insured as wages or as a reward for the insurer.
Definition of Insurance
In general, in the law itself, insurance is defined as an agreement that occurs between two or more parties, in which the insurer associates himself to the insured, by receiving a nominal amount of money or an insurance premium, in order to provide a replacement for the insured because of the loss, loss or damage, expected profit or legal responsibility on a 3rd (third) party which may be suffered by the insured party, which arises from an uncertain event or provides a number of payments which are based on the life or death of someone who insured.
Based on the KUHD (Book of Commercial Law), insurance is defined as an agreement in which the insurer binds himself to the insured, by accepting a nominal amount of the premium, in order to provide a replacement for him caused by the occurrence of a loss, loss or damage that may occur in the future without any guess.
There are several terms in the insurance agreement accompanied by rights & obligations by both parties listed in an insurance policy. Some examples of insurance include life, health, loss, accident & fire insurance.
There is also a party that gives the risk called the insured, which is a customer or society that gives the risk that will befall him, meanwhile the party that accepts the risk is also called the insurer, that is, the insurance company concerned makes the agreement policy. This policy is a legal contract that explains each term & condition covered. The nominal amount paid by the insured to the insurer for the risk he bears is called the premium.
The nominal amount of this premium is usually determined by the insurer which consists of a number of funds that can be claimed in the future, administrative costs and benefits.
Definition of Insurance According to Experts
1. Mark R. Greene
He stated that Insurance is an economic institution which reduces a risk by combining under one management and group object to a condition so that the large losses suffered by a group can already be predicted for a wider scope detail.
2. C Arthur Williams Jr. and Richard M. Heins
He stated that Insurance is a tool in which a risk of two or more people or in different companies combined through a definite premium contribution or which has been determined as the funds used to pay for something claim.
3. D.S. Hansel
He stated it in a book entitled Elements of Insurance which defines that insurance is always related to a risk or Insurance is to do with risk.
Various Kinds of Insurance
The following are types of insurance including:
-
Life insurance
Life insurance is to provide a financial benefit to the designated person for the death of the insured. -
Health Insurance
Health insurance is an insurance product that specializes in dealing with a health problem caused by an illness and bear a treatment process for members of the insurance his. -
Vehicle Insurance
Vehicle insurance is insurance for an injury to another person or for damage to another person's vehicle caused by an insured vehicle. -
Home and property insurance
Homeowners insurance is a protection for homeowners against losses related to their residence itself, personal property insurance as protection against a loss, or damage to certain belongings personal. -
Education insurance.
Education insurance is one of the solutions to educate and guarantee a better life. For example, like parents who make insurance for their children's education. The premium fee that needs to be paid by an insurance participant depends on the type of education one wants to get when his child is carrying out his education.
Insurance Purpose Function
The main function of an insurance is for the mechanism of transfer or transfer of risk or known as risk transfer mechanism, which is to transfer risk from one party where the insured party to another party, namely si guarantor.
Transferring this risk does not mean eliminating the possibility of misfortune, but the insurer will provide facilities in financial security (financial security) and peace of mind (peace of mind) for parties insured. In return, the insured party is obliged to pay a premium in a relatively small nominal when compared to the potential losses that may be experienced.
Insurance Purpose
- In order to provide a guarantee of protection if there are risks suffered by one party
- Increase efficiency
- cost equalization
- In order to guarantee life in the future
Basic Principles of Insurance
An institution or company engaged in the insurance business needs to fulfill the basic principles, including the following:
- Insurable Interests namely a right to insure, which arises in a financial relationship, between the insured party and the insured party which is legally recognized.
- Utmost Good Faith namely the step in expressing accurately and completely, all material facts (material facts) about something that will be insured whether requested or not.
- Proximate Cause namely the active, efficient cause which can give rise to a series of events that give rise to an outcome without the intervention of something initiated and from a new source as well independent.
- Indemnity namely the mechanism by which the insurer provides financial compensation for which there is an effort placing the insured party into the financial position held immediately before the loss occurred.
- Subrogation namely the transfer of the right of claim by the insured against the insurer after the claim money has been paid.
- Contribution namely the insurer's right to invite other insurers to jointly bear, but it does not have to be the same obligation to the insured party to participate in providing indemnity.
Insurance Benefits
The benefits of insurance include:
- To help manage in a finance
- Able to provide a guarantee of protection from risks in a loss suffered by the customer
- Able to increase an efficiency
- Risk Transfers
- To balance costs
- The basis for the bank to provide credit is because the bank requires a guarantee of protection from the building that has been given by the borrower.
- As savings
- In closing, the user's Loss of Earning Power or a business entity when he is unable to work
That was the discussion about Definition of Insurance, Function and Purpose (Full Discussion) fully and clearly explained. Hopefully helpful, and thank you.
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