Understanding
Insurance
Life is full of unexpected risks, because that's what we need to know about insurance. Some natural events that occurred in these years and take a lot of casualties, both victims of life or property, such as reminding us of the need for insurance. For each member of the society including the business community, the risk of suffering deprivation (misfortune) as it is always there, to overcome the loss of existing, people develop a mechanism that now you know as insurance.
Insurance has a stout form as an example:
health insurance.
Life Insurance. Auto Insurance. and any more.
The primary function of insurance is a mechanism to transfer risk (risk transfer mechanism), which transfer risk from one party (the insured) to another party (the insurer).
The transfer of risk is by no means eliminates the possibility of misfortune, but the insurer to provide financial security (financial security) and tranquility (peace of mind) to the insured. In return, the insured pays the premium in a very small number when compared to the potential losses that may be suffered.
In essence, an insurance policy is a contract that is a valid agreement between the insurer (in this case the insurance company) with the insured, where the insurer is willing to bear some losses that may arise in the future in return for
payment (premium) certain of the insured.
What is meant by
insurance or coverage is an agreement between two or more parties, with which the insurer committed themselves to the insured, by accepting the
insurance premiums to provide reimbursement to the
insured for loss, damage or loss of expected benefits, or legal liability to third parties may be suffered by the insured, arising from an uncertain events, or to provide a payment based on the death or life of an insured person.
In order for a potential loss (which may be) to be insured (
insurable) then it must have these characteristics:
1. losses should be limited,
2. loss must be significant,
3. loss ratio can be predictable
4. the loss of uncertainty,
5. loss is not catastrophic (catastrophe) for the insurer.
The question arises; death is uncertain, why be insured? Although it contains a certainty, but when exactly when someone's death is beyond the control of the person. So when the moment of death that really is what caused uncertainty insurable.
There are two forms of agreement in determining the payment amount at maturity of insurance, namely:
* Contract value (valued contract) and
indemnity contract (contract of indemnity). The contract value is an agreement in which the amount of
payment has been determined in advance. Example: The value of the sum assured (UP) on life insurance.
* Contract of indemnity is an agreement based on the number santunannya number of actual financial loss. For example, the cost of hospital care.
In the case of
insurance companies trying to suppress the possibility of a fatal loss / large, then it can transfer the risk to another
insurance company. It is called reinsurance, reinsurance companies that accept named reinsurers.
Before you can be insured, the
insurance company should consider the insurable interest and anti-selection. Insurable interest related to the relationship between the insured and the recipient of compensation / benefits - in terms of loss potential.
Example: the insurance company will not sell fire
insurance policy to a person other than the owner of the building is insured. Insurable interest in this case is the ownership of an eye something that is insured. Similarly, family relationships,
financial linkages reasoned, is an
insurable interest.
The definition of anti-selection (counter selection) refers to the existence of a greater tendency to take insurance because it has a level of risk above average.
Example: people who have a record of poor
heahlt or risk dangerous jobs tend to want to buy insurance. To reduce anti-selection effect, the
insurance company 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 led to the filing of insurance is rejected, because the risk of loss to the insured than average can be charged a premium sub-standard (special premium) due to sub-standard risk (specific risk) unless the possibility of loss is much higher, it may request denied
insurance.
