Definition, Functions and Benefits of Insurance

Insurance is coverage or agreement between two parties, where one party is obliged to pay contributions / contributions / premiums. The other party has an obligation to provide full guarantee to the contribution / premium / premium payer if something happens to the first party or his property in accordance with the agreement that has been made.

Insurance companies include non-bank financial institutions, but insurance companies still play an important role as one type of financial institution in a country. The function of the insurance company itself is a guarantee for the users of insurance services in anticipating the possibility of certain losses.

Losses caused by an event that is uncertain about life or even someone's death. Explanation of Functions and Benefits of Insurance more fully will be discussed below, there are also terms that are often used and examples of insurance that are generally offered.

Function, Purpose and Benefits of Insurance

Its main function is the risk transfer mechanism, which aims to divert risk from one party (the insured party) to the other party (the insurer). This transfer of risk does not mean eliminating the possibility of risk (misfortune), but the guarantor provides financial security or financial security facilities. In return, the insured is obliged to pay contributions (usually called premiums) in a relatively small amount when compared to the potential losses that might be experienced.

Benefits of Insurance


General Insurance

  • Property, provides protection or protection of property (houses, cars, shops, factories and others) due to events such as accidents, theft / loss, fire, natural disasters, and other unavoidable events.
  • Liability, provides protection to the insured against third party claims due to defective products or accidents. For example a car can be in the form of property insurance that provides a replacement when the car is damaged or lost, and / or to a third party's claim if an accident is caused by the policy holder's car.

Life Insurance

  • The soul, provides protection against the flow of funds (cashflow) or income to the heirs, if the insured dies.
  • Permanent and Total Disability, providing protection of income to the insured, if the insured experiences a record of the body so that he cannot work again.
  • Accidents, provide protection of income to the insured if it depends on being recorded due to an accident, or to the heir if the insured dies in an accident.
  • Health, provides protection against medical expenses caused by illness.
  • Annuities, guarantees a revenue stream as long as they are still alive. Usually the benefits of this annuity are taken by those who have entered retirement age. Annuity premiums are paid only once at the start of the contract and are relatively expensive.