Understanding of Insurance and Why Have Insurance?


Understanding of Insurance

Insurance is covered with an agreement between two parties. The first is the insurer and the second is the insured party. The insured party gets a guarantee of protection or protection from the insurer. With a note, the insured party will pay contributions or premiums to the insurer.

Insurance coverage consists of health care protection, the sum insured for life insurance, and protection for the property.

The form of coverage provided by insurance depends on the type of insurance chosen. Health insurance certainly provides health care coverage and life insurance will usually provide the sum insured or inheritance. Then, property insurance focuses on the repair and replacement of property.

From the explanation above, we also understand that the benefits of insurance are especially useful when we experience certain risks in life. With insurance, our cash-flow will be safer than using savings or investments if there is a risk.

So, to be clearer, first know the principles in insurance to understand how insurance works.

Insurance Principles

In the world of insurance, some principles form the basis of various rules and laws in insurance. These principles govern how to use insurance, what laws need to be obeyed, and include insurance procedures.

Come on, consider the principles of insurance and examples of their application when insuring.

a. Insurable interest

The principle of insurance provides an opportunity for insurance participants to ensure what they do so that it does not affect the interests or relationships of the insurance participant. Usually, the principle of insurable interest is applied to credit insurance. Where the insured will not burden the family or the closest people if something untoward occurs while the loan process is still running.

b. Utmost good faith

This insurance principle is often referred to as good faith. Namely, prospective insurance participants must convey truthful things about the condition of themselves and other insureds accurately and honestly. That way, the insurance company will be able to adjust insurance premiums and other agreements in the policy.

c. Proximate cause

This principle is the principle that finds out the main and earliest causes. From this principle, the insurance company can measure and provide reimbursement according to the real cause.

d. Indemnity

Indemnity is often referred to as the principle of redress. This principle helps companies to determine appropriate compensation under the premium and policy agreement. Examples of compensation include cash; repair or repair; reinstatement or replace damaged goods with new ones; replacement or repositioning of the losses incurred. "

e. Subrogation

This principle is the transfer of rights and responsibilities from the insurance participant to the insurance company after claim payment. For example, when an insurance participant has an accident caused by a third party. Then the insurance company has the right of subrogation to sue a third party through the insurance he has. "

f. Contribution

The contribution is often referred to as a double claim. However, the term is a lay term. In the world of insurance, double claims are known as Coordination of Benefit or CoB which is part of the Contribution principle.

This principle is a "fence" for insurance companies in paying claims. So, there is no term that the insurance participant will get an excess of funds from the total health care costs that will be paid by the insurance company. Especially when the insurance participant has the same two insurance products.

Why Have Insurance?

After knowing the principles of insurance and how it works, we can draw some conclusions about the role and why you should have insurance. Here are some things that will inspire us to immediately have a protection product.

  • Provides a sense of calm and security: insurance participants can feel calmer and safer if something unwanted happens. Because, he already has some sort of handle, namely insurance.
  • Transferring financial risks that may occur: With the existence of insurance, insurance participants do not need to bear financial risks that occur for certain causes. Because the insurance company will cover it.
  • Helping to manage finances: By having insurance, we are also trained to manage finances properly. We must set aside a portion of our income to pay premiums so that in the future we can get certain protection from the insurance product taken.
  • Could be "savings" or "investment": Certain types of insurance products can also be "savings" or "investment". Some of them are insurance wrapped in investment or endowment insurance that uses a savings system. This insurance product will provide cash value, that is, we will get a refund of the premium or profit.
  • Collateral for a loan to a bank: Some insurance products can also be guaranteed to the bank for a loan, you know! 
How to choose the right insurance? Some things that we must pay attention to are knowing the need for insurance first, understanding the related laws, and tips for choosing it. In the following discussion, these points will be discussed in depth.

How is the insurance premium calculated?

The calculation of insurance premiums is also based on the type of insurance product taken. Health insurance premiums are certainly different from life insurance premiums. Not only that, but health insurance premiums can also differ from one another. Depending on the benefits or facilities to be received.

1. Life insurance

The calculation of life insurance premiums is usually based on the following three methods:

  • Human life value, which is the premium calculation method that adds up the annual expenditure with the required funds at retirement.
  • Income-based value, which is a premium calculation method that compares income and inflation per year.
  • Financial value-based, which is a premium calculation method based on future needs, from children's education to health costs.

2. Health insurance

Meanwhile, the calculation of health insurance premiums is carried out by the insurance company by considering the following factors:

  • Age, the younger the insured, the more affordable premiums are usually.
  • Employment, the calculation of health insurance premiums will also consider the type of job of the prospective insured. Because, the more risky the prospective insured's job is, the greater the insurance premium.
  • Medical history is an important factor in calculating health insurance premiums. There are also health insurance companies that do not accept potential insured with a history of certain critical illnesses.

3. Loss insurance

Loss insurance usually provides protection against services for damage or loss of property. The calculation of premiums for some general insurance products is usually regulated by the government and some are based on location, history, and risks that can occur in property.

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