Definition Insurance: Purpose, Function, and Types of Insurance

Definition of Insurance in General

Actually what is meant by insurance? Understanding Insurance is a form of risk control in which one party transfers risks that may occur in the future to another party, in this case an insurance company.

The term “insurance” comes from the English word “insurance” which means coverage. So there are also those who say the meaning of insurance is an agreement between the insured (customer) plus the insurer (insurance company)

where the insurance company is willing to compensate for losses that may be experienced by the konsumen in the future.

To get insurance coverage for risks that may occur, the insured must pay an amount of premium to the insurance company within a certain period of time.

Definition of Insurance According to Experts

In order to better understand what insurance is, we can refer to the opinions of some of the following experts:

1. Subject
According to Subekti (2001), the notion of insurance is an agreement that is included in the type of chancy agreement where this agreement is deliberately made based on events that are not certain to occur in the future, which events will determine a person’s profit or loss. party.

2. Emmy Pangaribuan
According to Emmy Pangaribuan (1992), the notion of insurance is an agreement in which the insurer by enjoying a premium binds himself to the insured to free himself from losses due to loss, loss or nomer expected profit that he will suffer due to an uncertain event.

3. Abbas Salim
According to Abbas Salim, the notion of insurance is the willingness to set small or small losses that are certain as a replacement for large losses that are uncertain to occur in the future. So it can be concluded that people are willing to pay small losses for now so they can deal with big losses well.

4. Criminal Code article 246
According to KUHD article 246, the definition of coverage is an agreement whereby an insurer binds himself to an insured, by receiving a premium, to compensate for a loss or loss of expected profit that he may suffer due to an uncertain event.

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Insurance Purpose

As mentioned in the meaning of insurance above, the main purpose of insurance is to guarantee reimbursement for risks that may occur in the future.

Some of the purposes of insurance are as follows:

  • To transfer a number of risks that exist in a party to the insurance company.
  • A guarantee for a party to get protection for all risks of loss that may occur.
  • To minimize the potential for greater losses if you incur your own costs when a risk occurs.
  • Especially for certain life insurance (life insurance), insurance can be a savings because part of the cost of the premium will be returned to the customer.
  • For efficiency for the company because it reduces the biaya of supervision, security plus protection which takes up a lot of money plus time.
  • Get compensation to customers in accordance with the value of insurance premiums.
  • Covers the loss of productive power of a person or business entity when they are not working or nomer longer functioning.
  • As a basis for the Bank in providing credit to a person or business entity because the Bank requires protection for funds lent to customers.

Insurance Function




Then what is the function of insurance? Aside from being a form of risk management, insurance has several other important functions. Some of the insurance functions are as follows:

  • 1. Fundraising
    In this case, the insurance company acts as a collector of funds from the public. The funds collected will then be invested in various other business sectors to make them more productive.
  • 2. Help Business People Focus on Business
    Every business type must contain risks in it. For entrepreneurs, business insurance is something that is very important to help overcome anxiety in the event of an unwanted risk.With insurance in the company, entrepreneurs can focus more on operations plus business development.
  • 3. Reducing Potential Risks
    Every insurance company always provides recommendations to its customers regarding risks that may occur. That way, one can minimize or even prevent potential risks.
  • 4. Sharing the Risk of Loss
    With insurance, potential losses can be shared with other parties. In other words, premium payments made by customers are balanced with the risk transferred to the insurance company.

Insurance Type

There are several types of insurance that are used for various purposes. There are several types a insurance are as follows:

  1. Health insurance,
    which is a type of insurance that provides coverage for health problems caused by accidents or illness.
  2. Insurance life,
    which is a type of insurance that provides coverage for the death of customers who have financial value.
  3. Education Insurance,
    namely insurance that guarantees education to the insured.
  4. Business Insurance, namely insurance that provides guarantees to companies in the event of risks that cause losses, such as loss, damage, plus others.
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  5. Home and Property Ownership Insurance, namely insurance that provides guarantees to home or property owners in the event of damage to the property.
  6. Vehicle Insurance, namely insurance that provides coverage for vehicles in the event of risks such as damage due to accidents, loss, and others.

Thus a brief explanation of the meaning of insurance, its purpose, function, and types of insurance in general. Hopefully this article is useful and adds to your insight.



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