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Understanding What Insurance Is: Its Elements, Functions, and Types

What is insurance? It feels like we are familiar with hearing the word insurance. Unfortunately, this word has a negative connotation. Especially when we hear the word insurance agent, we will tend to avoid it.

However, sometimes we shy away from what we do not understand. So, what exactly is insurance? Come on, see the meaning of insurance, its function, and the examples below!

Definition of Insurance

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

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

Understanding insurance according to experts

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

"Inurance is an agreement between two parties, namely the insurance company and the policyholder, which forms the basis for the receipt of premiums by the insurance company in exchange for:

provide reimbursement to the insured or policyholder due to losses, damages, costs incurred, loss of profits, or legal liability to third parties that the insured or policyholder may suffer due to the occurrence of an uncertain event; or

provide payments based on the death of the insured or payments based on the life of the insured with benefits of a predetermined amount and/or based on the results of fund management."

Meanwhile, according to the KBBI:

"(Insurance, as a verb, is) coverage (an agreement between two parties, one party is obliged to pay dues, and the other party is obliged to provide full guarantees to the payer of dues in the event of something that happens to the first party or his property following 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 fee contributions that must be paid by the customer for an agreed period of time. Usually, premiums can be paid on a monthly, semesterly, to yearly basis.

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

Insurance claims are an official submission process to the insurance company when the customer experiences the risks covered in the insurance policy. If the insurance claim is made following the provisions stated in the policy, the insurance company will provide a certain amount of money as compensation for the financial risks experienced by the customer.

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