What is Insurance? Definition, Elements, Functions, and Types

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 will 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, and its functions, along with examples below!

Insurance Meaning / Insurance Definition

Insurance is a form of agreement between 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 may occur unexpectedly.

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

Definition of insurance according to experts

According to the Law Books, concerning Insurance:

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

provide compensation to the insured or policyholder due to loss, damage, costs incurred, loss of profit, or legal liability to third parties that may be suffered by the insured or policyholder 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 whose amount has been determined and/or based on the results of fund management.”
Meanwhile, according to the KBBI:

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

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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 customers during an agreed period of time. Usually, premiums can be paid on a monthly, semi-annual, or annual basis.

Meanwhile, the insurance policy is a legal document that regulates the insurance agreement. Starting from the value of the benefits, the number of premiums, and the risks covered, to exceptions (risks not covered by insurance).

Insurance policies are legal and legally binding. If there is a party that violates the policy rules, then the other party has the right to stop cooperation or even sue that party.

An insurance claim is an official submission process to an insurance company when a customer experiences a risk covered by an 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 deal with unexpected risks in life. Insurance does not guarantee that these risks will disappear, but at least you can minimize the financial losses experienced due to these risks.

You need to remember that the function of insurance is not as a certainty that our money will come back and in larger amounts. 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. 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?

What is Insurance and its type

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

1. Health Insurance

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 and inpatient insurance, as well as health insurance with daily benefits.

2. Life Insurance

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

3. Education Insurance

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

4. Home Insurance

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

5. Vehicle Insurance

Vehicle insurance. Just like homes, vehicles are also susceptible to unexpected damage, for example, the risk of accidents or theft.

6. Accident Insurance

Accident insurance. In addition to the vehicle, you need to protect yourself also from the financial risk of an accident. If your motorbike needs repair, you may also need medical expenses for the possible risks.

7. Critical Illness Insurance

Critical illness insurance. Even if we try to live as healthy as possible, everyone is at risk of developing a critical illness. From stroke to cancer to heart disease, all of these critical illnesses are unpredictable. The cost to pay the hospital bill is not small, because it requires insurance.

8. Travel Insurance

Travel insurance. Usually, this type of insurance is sold together with the vehicle ticket you buy. Be it trains, ships, or planes, all of them have travel insurance options to protect against delays or damage to baggage.

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

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

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