Definition, Elements, Principles and Benefits of Insurance
The term insurance comes from several languages. Dutch is called Assuranite which consists of the word assuradeur which means the guarantor and geassureeede which means the insured. Then in French it is called Assurance which means to bear something that happens. Whereas in Latin it is called Assecurare which means to bear something that might or might not happen (Kasmir, 2012: 260).
Here are some definitions of insurance from several book sources :
• According to Mehr and Cammack, insurance is a tool to reduce financial risk, by collecting sufficient numbers of exposure units, to make individual losses estimated. Then the predictable loss was shared equally by those who joined (Danarti, 2011: 7).
• According to Abbas Salim (2003: 1), insurance is a willingness to determine small losses (small) that are certain as a substitute (substitution) large losses that are uncertain. It can be concluded that, people are willing to pay a small loss for the present, so they are used to facing large losses that may occur in the future.
• According to M. Nur Rianto (2012: 212), insurance is a mechanism of protection for the insured if there is a risk in the future where the insured will pay a premium to get compensation from the insurer.
• According to Julius R. Latumaerissa (2011: 447), insurance is an agreement in which there is an insured party who pays a premium to the insurer in order to get reimbursement because of a desire, damage or loss of expected profits which is unlikely to occur in the future. come.
• According to Wirjono Prodjodikoro (1987: 1), insurance is an agreement in which a guaranteed party promises to a guaranteed party, to receive an amount of premium as compensation for losses, which may be suffered by the collateral, because the consequences of an event are not yet clear.
Elements of Insurance
Insurance has four elements as follows :• The insured, that is you or a legal entity that owns or has an interest in property.
• Insurer, i.e. the party who receives an insurance premium from the insured and bears the risk of loss / disaster that befalls the insured property.
• An uncertain (uncertain) accident (unknown).
• Interests (interests) that may experience losses due to events that are not certain.
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Insurance Principles
There are six types of insurance principles that must be met, which are as follows
1. Insurable Interest
The right to insure, arising from a financial relationship, between the insured and the insured and legally recognized.
2. Utmost good faith
An action to accurately and completely reveal all material facts about something to be insured, whether requested or not. This means that the insurer must honestly explain clearly everything about the extent of the terms or conditions of insurance and the insured must also provide clear and correct information on the object or interest insured.
3. Proximate Cause
An active and efficient cause that results in a series of events that lead to an effect without the intervention of a start and actively from a new and independent source.
4. Indemnity
A mechanism whereby the insurer provides financial compensation in his efforts to place the insured in a financial position he has just before the loss occurs.
5. Subrogation
Transfer of claim rights from the insured to the guarantor after the claim is paid.
6. Contribution
The guarantor's right to invite other insurers who are equally bear, but not necessarily the same obligation to the insured to participate in giving indemnity.
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Insurance Functions and Benefits
Insurance provides benefits for all parties, both the guarantor, the insured and the government.
These benefits include the following (Martono, 2002: 145-146) :
• A sense of security and protection. As an individual or entrepreneur, a policy that is owned provides a sense of security for losses that may occur.
• Fairer distribution of costs and benefits. The insurance coverage and premium amount are calculated accurately by considering various factors that influence it. Then the greater the coverage value will be the greater the premiums paid by the insured.
• Insurance policies can be used as collateral for obtaining credit and can be used as a means of obtaining credit. The amount of credit that an insurance company can give to the insured in accordance with the insurance value. To get credit from a bank, you need collateral (in the form of houses, buildings) and the collateral must be insured.
• Serves as a savings and income source. The premium paid by the insured has an element of savings that earns income in the form of interest and bonuses as an agreement.
Meanwhile, according to Ade Arthesa and Edia Handiman (2006: 237), insurance has several functions as follows:
• Provides a sense of security and protection. The insured party will get a sense of security from the protection provided by the insurance. Namely, financial risk due to loss, fire, damage, death, and other risks can be overcome by replacing a certain amount of funds in accordance with the sum insured.
• Savings and other sources of income. Some types of insurance also function as savings or income sources. Namely, in addition to providing protection, the insurance also provides benefits in the form of interest from the accumulated total premiums paid.
• Risk distribution tools. Risks that should be fully accepted by the insured can be spread to the insurer, so that the insured gets a sense of security in carrying out their activities. The consequence of this risk spread is the premium obligation that must be paid by the insured party.
• Fairer distribution of costs and benefits. The insurance value and the amount of the premium are determined based on the aspect of justice for both parties. In this case, no party feels disadvantaged or disadvantaged by the agreement. Calculation of the premium and the sum insured can only be done by an actuarial expert who has good credibility and is done with the right calculation.
That's a little review of Understanding, Elements, Principles and Benefits of Insurance
Hopefully it can add insight for all of us