Definitions, Types, & Benefits of Commercial Insurance

Commercial Insurance

Insurance is a protection product that functions to reduce the losses or risks that insurance participants experience. The protection products offered by this insurance company range from life, health, education to property insurance. It is hoped that the diversity of protection products can provide a real sense of security and protection for each participant.

Because there are many types of insurance in Indonesia, as participants we shouldn't be reckless in choosing. Buying an insurance policy is not only based on the benefits offered but also on the management system because this will have an impact on the amount of protection that will be provided. There are at least two types of insurance circulating in the Indonesian insurance industry, namely social insurance, and commercial insurance.

Broadly speaking, social insurance refers to protection programs provided by the government, while commercial insurance is an insurance product sold by the private sector.
Social insurance has a social mission to prosper and protect the interests of society, while commercial insurance seeks to earn from the sale of insurance products.

Definition of Commercial Insurance

So what is the exact meaning of this commercial insurance and what are the characteristics and benefits provided? Insurance is included in the types of insurance based on operational objectives.
Commercial insurance is insurance that aims to protect the finances of its participants, but on the other hand, at the same time, it is also aimed at seeking profit for shareholders and investors.
This profit will later be distributed to investors and also used for the development of insurance companies. Meanwhile, social insurance is a type of protection provided by the government, both officially and managed by the government, to ensure the financial protection of all citizens.
This is a form of social service from the government so that every citizen gets maximum financial protection from the risk of illness and death.

The Difference between Commercial Insurance and Social Insurance

  • Judging from the nature of participation

Commercial insurance never forces prospective participants to buy policies. All are voluntary because they want to be protected. There is no compulsion to buy certain premiums, all options are up to participants to suit their financial conditions.
Meanwhile, in social insurance, the nature of this membership is compulsory by law. Therefore, every citizen cannot refuse to get a policy and is forced to pay a premium even though the protection product may never be used.

  • Judging from the Take Advantage

It is clear that commercial insurance is made in addition to offering protection products, it is also expected to generate profits that can be used as company operational costs.
Benefits are obtained from the premiums paid by participants every month. It is for this reason why commercial insurance premiums are more expensive than social insurance. Like a business in general, this commercial insurance must return on investment.

While social insurance does not intend to seek profit, all premium costs paid by each participant are purely for the procurement of participant needs. Because it is managed by the government, social insurance does not require operational costs. Because of that, the premium set is also cheaper.

Generally, commercial insurance does not cover all types of claims, meaning that there are some exceptions to be applied. Even types of congenital diseases are usually not covered by insurance companies. Besides, several products also apply "forfeited funds" so that participants lose their money without ever filing a claim.
Meanwhile, social insurance benefits are more comprehensive or comprehensive. Covers almost all types of serious illnesses even though the premiums that must be paid are very affordable, on average cheaper than private insurance.

Also, the insurance period offered is different. If social insurance is projected to be sustainable or continuous in the long term. While commercial insurance has a time limit according to the agreement that has been made.

  • Judging from the Organizer

Stand-alone commercial insurance, it is clear that the organizer is a private company, but there are also private companies that collaborate with the government.

  • Viewed from the side of supervision

In terms of social insurance, from the selection of workers to the work system, the formation and establishment of which are based on separate laws. Meanwhile, commercial insurance formation, guidance, and supervision are carried out by the minister of finance.

Advantages of Commercial Insurance

Commercial insurance indeed burdens its participants to pay quite high premiums and high administrative costs. However, besides these costs, there are several advantages that you can only enjoy if you buy a commercial insurance policy. The following include:

  • The Sum Insured Is Greater

The most striking thing that distinguishes social and commercial insurance is the larger and wider coverage. While social insurance limits the types of drugs that can be obtained free of charge, commercial insurance covers almost all of the inpatient and outpatient needs of the participants. The greater the premium is chosen, the greater the protection that will be obtained. Also, the sum insured or death benefit gave is greater than social insurance.

  • Covering Participants Abroad

One of the things that social insurance cannot do but can afford to cover by commercial insurance is to pay for medical care while participants are abroad. Several insurance companies stipulate a cashless system but mostly use a reimbursement system. Commercial insurance companies also work with many overseas hospitals so that each participant does not have to worry about falling sick or having an accident abroad.

  • There is Profit Sharing

Some insurance companies even promise to share profits in a period of several years for special participants. Meanwhile, pure social insurance becomes social financing so that it does not offer other benefits to its participants other than general protection from insurance.
Although the amount of profit that is shared is insignificant, it is enough to make participants feel like they are not losing money paying high premiums over the years.

  • More Protection Products

While social insurance is cheaper, the protection products offered are usually limited. BPJS, for example, only has 2 insurance products, namely health and employment.
Meanwhile, if you buy insurance at a private company, we will be presented with many protection options such as health insurance, education, property, vehicles, etc. Even health insurance products are still broken down based on certain disease protection.

  • Easier Claims

Compared to social insurance, protection products offered by private companies have a claim system that is admittedly easier, especially those that have implemented a cashless system. Participants only need to swipe or show a membership card at the hospital (for health insurance), after which participants will immediately receive medical care.
Unlike social insurance, which is known to be complicated in administrative matters. Even then, the process is very long and time-consuming. With commercial insurance, participants can save more time and effort.

Types of Commercial Insurance

Commercial insurance managed by a private company is generally divided into two types, namely conventional and sharia insurance. Both offer the same benefits and protections, the difference is the business model they offer.

  • Conventional Insurance

The concept of conventional insurance is to transfer the insured risk to the insurance company. The stipulation is that participants pay premiums regularly and the insurance company will provide compensation when the policyholder submits a claim.
The premium paid includes the profit from the premium rotated in investment instruments that are fully owned by the company. Every insurance company that uses this conventional system is free to use funds from participants without limits, as long as it is for company development purposes.
Conventional Insurance implements a forfeited fund system, which makes participants unable to claim back premiums that have been paid from the company even though they have never filed a claim

  • Sharia Insurance

Namely, the type of insurance that is run under the sharia system. The basis of the business is risk-sharing between customers while the insurance company functions as an intermediary. Funds given to participants for each claim submitted come from joint accounts. Namely, an account containing the monthly premium paid by the participants.
Any profits generated and the management of insurance funds will be distributed to each participant evenly. Meanwhile, investment instruments only have to be clear about their halal status.
What distinguishes conventional Islamic insurance is the existence of a Supervisory Board which functions to keep insurance companies running their business according to Islamic law.
Those are the types of commercial insurance that exist in the insurance industry. Commercial insurance provides several benefits for its participants. Then choose the one that gives you the maximum benefit.

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