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Definition of Insurance: Elements, Functions, and Types

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It seems we are no stranger to hearing the word insurance. Unfortunately this word has a negative connotation. Especially when we hear the word insurance agent, we tend to avoid it.

However, sometimes we avoid what we don't understand. So, what exactly is meant by insurance? Come on, see the meaning of insurance, its function, along with the examples below!

Definition of Insurance

Insurance is a form of agreement between the two parties, namely the Insured and the Insurer, in which the Insured pays a contribution to the Insurer in order to obtain a form of compensation for financial risks that can occur unexpectedly.

In the context of a modern world, the Insurer means an existing insurance company, while the Insured is its customer.

Definition of insurance according to experts

According to the Law of the Republic of Indonesia no. 40 of 2014 concerning Insurance:

“Insurance is an agreement between two parties, namely the insurance company and the policyholder, which forms the basis for receiving premiums by the insurance company in return for:

provide reimbursement to the insured or policyholder due to loss, damage, costs incurred, loss of profits, or legal responsibility to third parties that may be suffered by the insured or policyholder due to an uncertain event; or

provide payments based on the death of the insured or payments based on the life of the insured with benefits whose amount has been determined and/or based on the results of fund management.”

Meanwhile, according to KBBI:

"(Insurance, as a verb, is) coverage (an agreement between two parties, one party is obliged to pay contributions and the other party is obliged to provide full guarantee to the contribution payer if something happens to the first party or his property in accordance with the agreement made) ”

What are the elements of insurance?

Insurance has 3 main elements, namely insurance premiums, insurance policies, and insurance claims.

Insurance premiums are fees that must be paid by customers during an agreed period of time. Usually, premiums can be paid on a monthly, semi-annual or annual basis.

Meanwhile, an insurance policy is a legal document that regulates an insurance agreement. Starting from the value of the benefits, the amount of the premium, the risks covered, to the exclusions (risks that are not covered by insurance). Insurance policies are legal and legally binding. If a party violates the policy rules, then the other party has the right to stop cooperation or even sue that party.

Insurance claim is the process of formal submission to the insurance company when the customer experiences a risk covered in the insurance policy. If an insurance claim is made in accordance with the provisions stated in the policy, the insurance company will provide a sum of money as compensation for the financial risk experienced by the customer.

So what is the function of insurance?

The main function of insurance is to help you overcome unexpected risks in life. Insurance does not guarantee that this risk will disappear, but at least you can minimize the financial losses that are experienced as a result of this risk.

You need to remember that the function of insurance is not as a certainty that our money will return and in a larger amount. The main role of insurance is not to earn more money, like investing, but to focus on protecting against risks that we cannot predict.

In other words, insurance is our way of expecting the unexpected (preparing for things we cannot prepare for). Starting from the risk of accidents, the risk of falling ill, to the risk of losing the main breadwinner in the family. All of these risks are covered by insurance.

What are the types of insurance?

There are many types of insurance available. The risks protected by each insurance are different. However, basically, here are some of the most common types of insurance that people have:

Health Insurance. With the risk of disease that can happen to anyone and increasing health costs, it's no wonder that this type of insurance is very popular because there is outpatient insurance and inpatient insurance, as well as health insurance with daily benefits.

outpatient insurance

Life insurance. Usually used to protect the risk of death for the main breadwinner in the family.

Education insurance. Saving for higher education costs is increasingly difficult, so there's nothing wrong if you start saving for your little one's education insurance.

Home insurance. Home is one of the primary needs. Not only us, but the goods we have can also be at risk. Therefore, home insurance guarantees sudden damage to your home, such as fire, colonization, and others.

Vehicle insurance. Just like a house, vehicles are also vulnerable to unexpected damage, for example the risk of an accident or theft.

Accident insurance. Apart from vehicles, you need to protect yourself from the financial risk of an accident. If your motorbike needs repair, you may also need medical costs for possible risks.

Critical illness insurance. Even though we try to live as healthy as possible, everyone still has a risk of getting a critical illness. Starting from stroke, cancer, to heart disease, all of these critical illnesses are unpredictable. The cost to pay for the hospital bills is not small, because it requires insurance.

Critical Illness Insurance

Travel insurance. Usually this type of insurance is sold together with the vehicle ticket you buy. Both trains, ships, and planes, all have travel insurance options for delay protection or damage to baggage.

The type of insurance chosen will be different for everyone. This is because there are several types of insurance that are more needed, such as health insurance and life insurance, but some are secondary, such as education or vehicles.

This is because not everyone already has children or vehicles. But everyone certainly has a risk of getting sick, both young and old. Need online insurance? Come on, just choose Super You products. Affordable premiums, starting from IDR 30,000 per month.

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