Understanding Insurance

Life is full of risks that are unexpected and unpredictable, therefore we need to understand about insurance.Some natural events that happened in recent years and takes a lot of casualties, both loss of life or property, such as reminding us of the necessity of insurance.

 For every Member of society including the business community, the risk to experience unfortunately (misfortune) like this are always there (Kamal: 2003). In order to overcome losses arising, humans develop a mechanism we currently know as insurance.

The primary function of insurance is a mechanism for transferring the risk (risk transfer mechanism), i.e. the transfer of risk from one party (the insured) to any other (person). Transfer of risk is by no means eliminated the possibility of misfortune, but rather the person providing financial security (financial security) and peace (peace of mind) for the insured. In return, the insured paying a premium in a very small amount compared to the potential losses which may be sustained (Morton: 1999).

Basically, the insurance policy is a contract which is a legal agreement between the person (in this case an insurance company) by the insured, where the person willing to bear a loss which may arise in future in return for a payment (premium) of the insured.

According to Act No. 2 of 1992, the insurance coverage or are agreements between two or more parties, with which the person tying themselves to the insured, the insurance premiums by accepting to provide the replacement on the insured for loss, damage or loss of profits expected, or legal liability to third parties which may be suffered by the insured, arising from an event that is uncertain, or to provide a payment based on the life of someone who died or placed.

In order for a potential loss (case may be) may be insured (insurable) then it must have the characteristics: 1) occurrence of damages uncertain, 2), 3 losses should be limited to significant loss) 4) ratio of losses can be foreseeable future losses and 5) are not katastropis (disaster) for the person.

There arose a question; death is something that is certain, why get insured? Even though it is something that contain certainties, but exactly when the death of a person residing outside the control of the tsb. So in the wake of the events of death that is downright containing uncertainty this causes insurable.

There are two forms of agreement in setting the amount of the payment at maturity of insurance including: contract value (valued contract) and contractual indemnity (contract of indemnity). The contract value is the amount of the payout agreement which has been set up in advance. For example, the value of the sum assured (UP) in life insurance. Indemnity contract is an agreement that the number of santunannya based on the actual amount of financial loss. For example, the cost of hospital care.

In the event of an insurance company tried to suppress the possibility of huge losses, the fatally/can turn risk to another insurer. This is called reinsurance; companies that accept reinsurance is named reasuradur.

In addition to the above characteristics of the fifth, before it can be insured, the insurer shall take into account the insurable interest and the selection. Insurable interest relating to the relationship between the insured with the recipient charities/benefits – in case of potential loss. For example, the insurance company will not sell fire insurance policy in addition to the building owners are insured. Insurable interest in this example is the ownership of thd something is insured. Similarly, family relationships, the interconnectedness of financial reasoned, is also a form of insurable interest. An anti selection (counter selection) refers to the existence of a greater tendency to get insurance because it has a level of risk above average. For example, people who have a record of bad health or risk of hazardous work tend to want to buy insurance. To reduce the effect anti selection, insurance companies must be able to identify and classify potential risks or losses. The process of identification and classification of the level of risk is called underwriting or risk selection. But that does not mean anti selection causes the submission is rejected, because of their insurance for the insured with the risk of losses above the average may be subject to the premium sub standard (special premium) due to the risk of sub standard (specific risks), unless the possibility of the losses were much higher, perhaps their insurance application was rejected.

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